Credit Agricole SA (CRARF) (Q2 2026) Earnings Call Highlights: Record Revenues and Strategic ...

Negative Points

• Credit Agricole SA ( CRARF ) faces increased cost of risk in CAPFM, particularly in Personal Finance in France, due to the challenging economic environment, with a EUR60 million increase in Stage 3 provisions.

• The used car remarketing activity is negatively impacted by an unfavorable automobile market, leading to lower results at Credit Agricole Auto Bank/Drivalia and a decrease in lease contributions by EUR33 million.

• The company's CET1 ratio remained stable at 11.3%, but was impacted by 33 basis points from the increased stake in Banco BPM, limiting capital flexibility for other investments.

• Credit Agricole SA ( CRARF ) faces uncertainty in Italy, with no concrete merger proposal for Banco BPM and MPS, and management expressed difficulty in seeing value creation from such a combination, potentially limiting strategic options.

• The company's tax rate increased to nearly 28% in Q2 due to higher operational performance and base effects, which could pressure future net income if sustained.

• There is a technical migration of EUR128 million in Stage 3 provisions related to asset disposals in CACEIS, which increased impaired loans and reduced the coverage ratio, though management notes this is a prudent provisioning measure.

• Management remains cautious on net interest income guidance, with expectations of only high single-digit growth in France and stability in Italy, despite strong Q2 performance, due to competitive markets and potential Livret A rate increases.

Q & A Highlights

Q: Given the strong first-half results with a cost-to-income ratio of 54.7% and RoTE above 14%, are you considering an upgrade of your medium-term targets, especially in light of your new AI investments? A: Clotilde L'Angevin (Deputy GM, Finance and Steering Division): We are on track with our medium-term targets. The cost-to-income ratio in Q1 is typically lower than Q2, so you cannot simply annualize the H1 figure. We reiterate that the 2026 cost-to-income ratio will be below the 2025 pro forma level of 57.4%, and net income will continue to increase in 2026. The AI platform is one of several levers we are using to improve operational efficiency across our decentralized model, alongside cross-entity initiatives and acquisition synergies.

Q: You have increased your stake in Banco BPM to 29.3% and stated that a merger between MPS and Banco BPM is difficult to see as value-accretive. What is your preferred scenario in Italy, and are you proactively working towards it? A: Clotilde L'Angevin (Deputy GM, Finance and Steering Division): Our strategy in Italy is unchanged; it is our second domestic market and a strategic priority. Our preferred scenario would be a merger between Banco BPM and Credit Agricole Italia, as it would generate significant value for us. Increasing our stake to 29.3% is a proactive move that ensures nothing can be done without us or against us. We are a long-term partner and key player, and we will ensure any outcome is value-creating for our shareholders.

Q: Can you explain the significant increase in impaired loans and the technical migration from Stage 2 to Stage 3 provisions, particularly in CACEIS? A: Clotilde L'Angevin (Deputy GM, Finance and Steering Division): The increase in impaired loans is partly due to a technical migration of specific files that are currently being disposed of. When we have a good idea of the disposal price, we adjust provisioning to match that price, which can result in a similar level of Stage 3 provisions compared to the reversal of Stage 1 and 2 provisions. This reflects our very prudent provisioning stance. Excluding this technical impact, the NPL ratio for CACEIS is below 2%, and our overall coverage ratios remain very high.

Q: Regarding French retail NII, what is the potential impact of the expected Livret A rate increase, and is the high single-digit NII growth guidance still valid? A: Clotilde L'Angevin (Deputy GM, Finance and Steering Division): We expect a 20 basis point increase in the Livret A rate in August. Before hedging, this would have a negative impact of around EUR10 million for LCL between August and December, but since we hedge our balance sheet, the actual impact is very limited. We maintain our guidance for high single-digit NII growth for the year, driven by volumes, normalization of term deposit rates, and the positive difference between front book and back book rates.

Q: Can you provide more color on the weakness in the used car market impacting your Specialized Financial Services division, and when do you expect an inflection point? A: Clotilde L'Angevin (Deputy GM, Finance and Steering Division): The used car market is weak due to new vehicle sales being 20% below pre-COVID levels and used car prices normalizing, down about 12% from their peak. This is exacerbated by the underperformance of our partner Stellantis. We do not expect a good year in 2026 for our automobile activities and likely no improvement until 2027. We are implementing structural measures to restore productivity, but the market environment will continue to weigh on our performance this year.

Q: What is driving the higher tax rate of nearly 28% in Q2, and what should we expect going forward? A: Clotilde L'Angevin (Deputy GM, Finance and Steering Division): The higher tax rate is due to strong operational performance increasing the tax base, along with base effects from last year, including capital gains in insurance with reduced tax rates and higher taxation in Italy, Poland, and Ukraine. We do not provide specific tax rate guidance, but we would not consider 2025 a more normal year than 2026.

Q: How should we think about the quarterly volatility in model and OCI adjustments to capital, given the plus 22 basis points this quarter versus minus 17 basis points last quarter? A: Clotilde L'Angevin (Deputy GM, Finance and Steering Division): There have been pluses and minuses in these adjustments across quarters. We expect this volatility to continue, but on a net basis, it should be relatively neutral to our capital until the end of the year.

Q: The strong performance in investment banking was partly driven by structured equity. Is this a business you are developing further, and is it focused on retail distribution? A: Clotilde L'Angevin (Deputy GM, Finance and Steering Division): Yes, the excellent performance in structured equity and equity derivatives contributed to the over 60% growth in investment banking. This includes distribution to retail networks, but it is not limited to that. We are developing this business as part of our medium-term growth plan, including expanding into new markets across Asia and sustaining activity in the US.

Q: Regarding the coverage ratio in CACEIS, why has it decreased despite the increase in gross NPLs, and what is the outlook? A: Clotilde L'Angevin (Deputy GM, Finance and Steering Division): The coverage ratio decreased due to the technical migration of files to Stage 3, which increased the denominator of impaired loans. However, our overall coverage ratio remains very high at 67.2% for CASA. We have a large buffer of Stage 1 and 2 provisions (EUR3.2 billion) that we are using to absorb incurred risk, which protects us from any future surge in cost of risk.

Q: You mentioned a target of EUR2.3 billion NII for LCL in 2028. Given the strong Q2 run-rate, is this target already stale? A: Clotilde L'Angevin (Deputy GM, Finance and Steering Division): The target should be viewed in terms of the rate of growth, which is 6% over

For the complete transcript of the earnings call, please refer to the full earnings call transcript .