Crédit Agricole plan flaunts modern mutualism


Dominic O'Neill
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Medium-term plan targets same efficiency and little ROE increase, but client growth and new social motto please mutualists and Macron.

There are hard political reasons why Crédit Agricole formally set out the rationale for its existence – for the first time, it said – in its new medium-term plan on Thursday. 

Not least is president Emmanuel Macron’s new law, passed through parliament in April, which cuts the obligations of smaller businesses towards their employees, while encouraging bigger businesses to officially acknowledge their duties to a wider set of social and environmental stakeholders, as well as to their employees: and not just to the stock market.

“Working every day in the interest of our customers and society” is the bank’s new motto.


Philippe Brassac

This relegation of financial investors, however, might come relatively naturally to Crédit Agricole, whose clients already own the group’s backbone. 

Indeed, a similar reaffirmation of the group’s mutualist ethics of socially conscious liberalism lies behind Philippe Brassac’s campaigns, since 2008, to bring the governance and business of the listed central vehicle he now runs – Crédit Agricole SA (CASA) – back into the fold of the group’s 39 regional cooperative banks, which own the majority of CASA.

Brassac’s new plan will serve to “amplify our mutualism commitment” to social and client goals, in a context of “growing societal expectations” on businesses. Before the crisis, after all, CASA and the regional banks had separate strategic plans. Now the entire group must strive to be “the European leader in responsible investment”. 

That means more investment in enterprises in the so-called social and solidarity economy, arranging more social bonds, and strengthening the Grameen Crédit Agricole Foundation.


Fundamentally, the plan reaffirms a strategy of selling a wide array of products to millions of customers – firstly at the regional banks – as the basis of what Brassac calls its “usefulness", and its “unique relationship model”.

Consequently, Crédit Agricole as a whole (unlike CASA) does not disclose any profitability targets, including a cost/income ratio: because the regional banks are unlisted, and thanks to their mutual ownership the group can retain more than 80% of its earnings. 

However, although it already has the biggest retail customer base in Europe, it is targeting an additional one million clients in France and Italy: including a further percentage-point increase in the regional banks’ dominant 25% share in home loans in France.

We’ve taken a very prudent assumption on the cost of risk. We don’t see any real sign of a deterioration on our credit counterparties globally 
 - Jerome Grivet

The bank, like other French banks, thinks more home loans are important as that is the hook to sell other products such as insurance and asset management, and as borrowers can be obliged to take out creditor insurance (albeit no longer necessarily from the lender). 

The group is targeting a five percentage-point increase in the proportion of its French customers with at least one property or casualty insurance contract, bringing the ratio to 30% at LCL and 40% at the regional banks. It is also in discussions with potential partners so clients could use the bank as a channel for job searches or house hunting.

Investors initially seemed to like the strategy –  as CASA’s shares rallied on the news of the plan –  until the dovish message in the ECB’s press conference the same day drowned out the more positive message at Crédit Agricole, along with other big European bank stocks.

Speaking to Euromoney earlier this year, Brassac criticized the demands of blinkered stock players for expecting constantly rising returns on equity, while disregarding whether it would be sustainable. Appropriately, CASA has set a ROE target for 2022 of 11%, markedly below the 12.8% it earned last year. 

“We’ve taken a very prudent assumption on the cost of risk," explains chief financial officer Jerome Grivet, although he says that 40bps assumption (up from 23bps in 2018) is not a forecast: “We don’t see any real sign of a deterioration on our credit counterparties globally.”


While Basel rules will lead to fresh pressure on its capital ratio, CASA plans to increase net income to €5 billion by 2022, up from €4.4 billion in 2018. This is an increase in the 10% ROE target of the last plan. Now the bank will use customer satisfaction scores to appraise its relationship managers – and assess CASA’s executives by a similar score for their staff’s contentedness. 

Yet CASA is still seeking to bring down its cost/income ratio to 60%, the only one of its previous targets it did not realize a year early, although it did bring it down from around 68% to around 62%.

The group-wide plan envisages ploughing €15 billion into its technological transformation to help improve its efficiency over the next four years, around €6 billion of which is for investment, rather than running existing IT systems. 

The group aims to increase the proportion of customers using its digital applications from about a third to about half in France, with new commitment to Eko and LCL Essential – its response to the rapid growth of Compte Nickel, the bare-bones account provider BNP Paribas acquired in 2017.

The group’s recently integrated payment will be another destination for investment, totalling €450 million by 2022. Having formed an ecommerce and point-of-sale partnership with Germany’s Wirecard last year, Crédit Agricole Payment Services is now targeting an annual increase in revenues of €150 million, and should play into its wider SME and cash management strategies.

The regional banks aim to increase their overall market share of SME loans and deposits in the plan by 1.5 percentage point, to 15%. 

The group is particularly interested in growing cash management, as a means to deepen its relationships and increase its wallet share among existing SME and mid-cap clients, as another priority for the Macron administration has been to help smaller French businesses start exporting.