In three months, the world’s landscape changed dramatically. At a speed he had rarely seen before. A war of territorial conquests has broken out in Europe, central banks are now running after inflation and growth prospects have darkened significantly.
In this particular context, the results of the first quarter of the major French listed banks can offer valuable lessons. The bank is indeed a reflection of economic life. First surprise, the results of BNP Paribas, Société Générale and Crédit Agricole SA are more than stable.
Strong increase in revenue and profits
BNP Paribas thus opened the ball for the posts, exceeding all predictions. Thus, revenues increase by 12% on an annual basis to 13.2 billion euros and even by 19% on a quarterly basis. According to stockbroker Jefferies, 70% of this increase in revenue comes from investment banking, especially market activities. Even better, the profits of the first bank in the eurozone exceeded analysts’ expectations by half to 2.1 billion.
For its part, Societe Generale published equally consistent results this morning. Its revenue, higher than expected, in all its activities, increased by 17% on an annual basis to 7.3 billion euros, while the net profit recorded at 842 million (+ 3% on an annual basis) also exceeds expectations.
On the other hand, Crédit Agricole SA (CASA), the listed structure of the mutualist group, although famous for the regularity of its results, is disappointing. Revenue is certainly good (+8 year on year) at almost € 6 billion, but less dynamic than the other two French banks. Above all, the group sees the cost / revenue ratio deteriorate, still below the 60% threshold.
In short, the banks are doing better than well, but the deterioration of the environment has accelerated especially after the Russian invasion of Ukraine on February 24. Banks were able to take advantage of two months, certainly turbulent in the markets, but then the dynamics of 2021, a year with record results for the industry.
The Russian impact
Obviously, the cost of the war in Ukraine and the cessation of the activities of French banks in Russia is the most frightening element. We have been waiting for Societe Generale, the French bank most exposed to Russia, it is finally CASA that presents the strongest forecasts. Over 600 million euros! “Careful provision”, recalls Philippe Brassac, CEO of Crédit Agricole SA. As a result, the group’s net income decreased by almost 50% to 552 million euros.
In detail, the group has forecast all the net assets of its Ukrainian subsidiary (200 million) and has formed almost 350 million provisions for “unproven” risks in the portfolio of loans or guarantees exposed in Russia and 43 million for proven risks. . For the bank, this donation should be “once and for all”, sufficient to cover all risks. Above all, he points out that its exposure to Russia, both on land and offshore, is declining rapidly – the bank has stopped all new financing – by about 600 million compared to the end of 2022.
“The deadlines have been met so far “The total, as of March 31, is 700 million (land) and 3.7 billion offshore, or a total of 4.4 billion. The group has also forecast 200 Millions in its Ukrainian subsidiary.
Rosbank sale in the second quarter
For Societe Generale, the invoice is postponed to the second quarter. The bank decided to sell the Russian subsidiary Rosbank to its former owner, Vladimir Potanin, who is rumored to be close to Vladimir Putin, who, strangely enough, is escaping European and American (but not Canadian) sanctions. The bank confirmed a negative impact of 2 billion euros on the results.
The transfer must be made, “In the coming weeks”, according to Frédéric Oudéa, CEO of Societe Generale, who sees no legal risk in this transaction. At the same time, offshore exposure to Russian risk fell from 400 million to 2.8 billion euros during the quarter. According to the bank, the net risk exposure is less than one billion euros, not counting the 218 million in forecasts recorded in the first quarter.
For BNP Paribas, Russia seems to be non-subject. The group simply devalued 90% of the book value of its Ukrainian subsidiary (160 million), while two-thirds closed due to the war.
With the exception of the Russian context, none of the three banks has observed a worsening of the risk. Forecasts at BNP Paribas are close to zero, due to a significant reversal of forecasts for the US subsidiary of Bank of West, in a sale process. Societe Generale slightly increased its risk cost accuracy in 2022, in the range of 30 to 35 basis points, compared to 30 basis points previously. This risk cost rose to 39 basis points in the first quarter, including 31 basis points in the Russian archive. So nothing to worry about.
Once again, the results of the French banks were significantly burdened by their contribution to the Single Resolution Fund (SRF), a European mechanism set up to guarantee deposits in the event of bankruptcy. This is not a new problem. For years, French banks have been challenging the method of calculating levies, which puts them at a disadvantage. In fact, French banks alone contribute a large third of their annual contributions. On the contrary, because the contributions are based exactly on deposits (1.35% in 2021). Ή 11 billion euros in 2021.
Today, however, banks are careful to note this “injustice” in the presentation of accounts. And that amounts to hundreds of millions every quarter! Thus, CASA saw its contribution soar this quarter by 25%, from year to year, to 636 million!
Hence this cry of anger from Frédéric Oudéa: “France had a good time! is a fund paid by the big banks of Europe, so essentially French. And when we take stock of what the French banks will have paid into this fund, it will be absolutely gigantic! How much more that instead of 55 billion euros we will probably have collected a total of 75 or 80 billion euros which in my opinion will not be used for much. “Even though the banks need capital to finance the economy, the energy transition.”
Despite the clouds that are gathering over the financial landscape, the three banks have confidence for the year 2022 and confirm their financial goals. This is the case of BNP Paribas, which emphasizes that ” The good trade dynamics at the beginning of the year consolidates our course for the year “.the bank said in a statement.
The same message from the Société Générale confirming its financial goals. “We are approaching this year with clarity about the uncertainties but with confidence about the dynamics of our businesses”, promoted by Frédéric Oudéa. which emphasizes “That in the next four quarters we will see the introduction of a new business model”, with a “new” retail bank in France, an enhanced Boursorama and the establishment of a third pillar of business around the “new” ALD, the future world leader in car rental. And, given the good figures for the first quarter, the bank even plans to revise its targets to upward market activity in 2022.
Crédit Agricole does not like forecasts. The team is based on the repetition of its performance in which the crises (Covid, Ukraine, etc.) seem to slip. “This is the power of our model” says Philippe Brassac.
Changes in consumer or business behavior, if manifested in environmental degradation, would probably be reflected in early 2023 rather than in bank accounts this year, slipping into the substance of bankers.