Crédit Agricole continues to trust Italy and is ready to invest again in our country. The tenth banking group in the world has just presented the new four-year business plan and the Italian activities, led by Giampiero Maioli, are destined to increase the incidence on group profits to 18%. «We exclude cross-border mergers with banks in other European countries because the current rules do not allow for real synergies, but we are ready to evaluate a further dimensional leap in asset management with Amundi», explains Xavier Musca, deputy CEO of Crédit Agricole, in this interview with Il Sole 24 Ore which starts from the new plan just presented which provides digital investments for 15 billion in four years and a net profit of 5 billion in 2022.

The plan to 2022 focuses mostly on growth, much less on cutting costs.

In terms of profitability, the focus is on improving the cost/income ratio, by raising the awareness of all business lines about their responsibility to set the increase in revenues as a priority. We have the skills and ability to achieve that. If revenues do not increase enough, we shall take action on costs, because the cost/income targets are the strategic objective that we have announced to the market. Sometimes cutting costs means cutting investments. We are going to do everything we can to prevent that.

Crédit Agricole is a strong group, with capital ratios that, in 2022, will be among the best ones in Europe. Are you going to strengthen them because you fear an economic crisis is coming? You have also assumed the cost of risk increasing to 40 basis points. Why?

The plan is based on a conservative macroeconomic scenario, but not on a recession one. In the previous business plan we had assumed a cost of risk of 50 points, while now it is at 21. It is hard to believe that it is going to remain so low on a forward-looking basis. This is the reason why, with our usual caution, we have assumed it at 40. As to the capital ratios, we have set a target Cet1 of 11% for CAsa, which is listed and intends to ensure an interesting ROTE for its shareholders and investors. But, at the Crédit Agricole Group level, we want to be among the strongest ones and we have set a target Cet1 of 16%, with two advantages: a higher rating and cost savings vs. the alternative of issuing bonds to comply with the MREL and TLAC expected of systemic banks.

The plan provides for large investments for 15 billion in technology. Are you concerned about fintech and, especially, big tech competitors? Many bankers are afraid of the possibility of an Amazon Bank starting operations. What do you think?

There is no doubt that, should Amazon start to operate in the banking sector, the scenario would become quite challenging. For the time being, we are seeing that fintech is conquering market shares, but we are not worried in the long term. First, because also fintech shall be subject to regulations and capital requirements. Second, because all banks - not just us - are making large investments in digital technologies and are going to defend their customers. Third, because fintech grows and attracts less profitable customers.

“We do not think that there are the conditions for cross-border mergers, because cost savings are next to impossible without a true banking union in Europe”

Xavier Musca, deputy CEO of Crédit Agricole 

The ECB supervisory arm is urging cross-border mergers. Nevertheless, the only (and failed) attempt of merger between large banks has been the German castling with Deutsche and Commerzbank. What is Crédit Agricole's stance as regards mergers between large banks and, specifically, on the cross-border matter in Europe?

We do not think that there are the conditions for cross-border mergers, because cost savings are next to impossible without a true banking union in Europe. The architecture of banking regulation has still a national basis: each Country has its different taxation system, mortgage loans are not harmonized, in general laws and rules are different. In such a scenario, cost synergies - starting from the impossibility of having a single information system - cannot be assumed in any cross-border merger. Therefore, organic growth is still our priority.

Rumours have been going on in the market, and have never been denied or confirmed, about a possible combination between UniCredit with the French Société Générale. Would a change in the competition “status quo” create problems for you?

Our assessment is that, for the time being, cross-border combinations are not advantageous. I am not going to question the choices made by other competitor banks I have high respect for.

In Germany, Commerzbank is still looking for a partner. The Dutch Ing has been mentioned and, again, UniCredit. Are you interested in growing in Germany? And in Poland, where you are in operation but not on a large scale?

In Poland we are in operation with one bank and we aim to grow above all by pushing consumer credit. Acquisitions? We are flexible, in accordance with our profitability and capital planning obligations, depends on the opportunities. As to Germany, I want to say very clearly that we do not have any plan whatsoever for development in retail banking, a very complex business with very high competition. Conversely, we intend to develop Amundi and the corporate & investment banking channel in Germany. Up to now, we targeted corporate customers with revenue of two billion or higher, now the threshold is one billion revenue. To German corporations Crédit Agricole can offer the services of a large international network and of a strong bank with high liquidity.

You are not going to be short of opportunities, given the conditions of Commerz and Deutsche Bank. Let's speak of the Banking Union, which continues to make no progress due to the opposition of some States to risk sharing. Do you think that the new European Parliament and the new Commission will go on with it?

The Banking Union is a must have in order for Europe to have strong banks that can compete at a global level. It is very likely that the new Commission will pursue the objective of achieving the banking union. But, in the end, any progress depends on political will. In the medium term, a more integrated Europe is just logic.

“The Basel 4 rules on capital are penalizing for European banks and will give an advantage to USA banks”

Xavier Musca, deputy CEO of Crédit Agricole 

Are European banks bound to succumb to the USA giant lenders, which by now are dominating also the European capital market and investment banking industry?

We need strong European banks in order to compete in the global arena, also in the US market. But we need rules that do not penalize us. The Basel 4 rules on capital are penalizing for European banks and will give an advantage to USA banks.

You have the insight of a banker but also of a politician: some years ago you were the director-general of the French Treasury and the Secretary of the Élysée during the Sarkozy Presidency. What do you think of the tensions between Italy and France? From Vivendi in Telecom and Mediaset, to the tensions between Essilor and Luxottica, up to the luxury goods industry with many Italian players acquired by the French giants in this sector. Not to mention the failed negotiations between Renault and Fiat, of which Crédit Agricole is a partner in FCA Bank.

In general, commenting on the economy and not on politics, I would say that they are two great Countries with a lot in common. Their economies are very interdependent. France is Italy's second largest trade partner (second largest supplier and second largest customer), while Italy is France's third largest supplier and third largest customer. Then, there is the matter of business acquisitions: I can see some difficulties and many success cases, in both directions. As regards Crédit Agricole, I see no problem whatsoever. We have excellent relationships with Italian banks, with Cdp, with the big Italian groups, with regulators and Authorities.

And what do you think about FCA-Renault? You are FCA Bank's partner for Europe...

We are not going to comment on these negotiations. I can tell you that we and FCA are both very satisfied of our partnership, within which net income increased from 171.7 million in 2013 to 388 million in 2018. The partnership was renewed for the first time in 2013 and negotiations are underway for a second renewal.

As to asset management, over the years you have created a giant like Amundi. In order to be able to compete in the global scenario with USA and Asian large groups in this industry, is Amundi's present size enough or soon or later will you have to take a new leap?

Amundi is No. 1 asset manager in Europe and the only European one in the world Top 10, with 1,500 billion Euro worth of assets under management and operations in 36 Countries worldwide. Amundi has a low cost/income ratio and is part of a well-capitalized group. Should opportunities for growth arise, we will evaluate them, especially in Europe but also in Asia.

Now let's talk about your operations in Italy, where you are big players in all financial services. Let's start from the traditional banking business, which started with Cariparma and then has grown over the years. Two specific topics. Are you interested in saving Carige? You have a 5% shareholding in Credito Valtellinese and have the possibility to increase your share to 10%. Another strong shareholder, with 10%, is the French businessman Mr. Dumont. What steps are you going to take?

We are not assessing any existing dossier regarding Italy at present, our priority in Italy is organic growth. We stepped in to rescue the three savings banks based in central northern Italy, because we could envisage possible synergies with limited capital commitment. We do not intend to make large acquisitions, but we do not rule out any similar interventions - similar as to logic - to those in the three savings banks. As to Credito Valtellinese, CA Assurances holds 5% of the bank's capital supporting the agreement for the distribution of its life bancassurance products signed in 2018. We have stated that we may increase our shareholding to 9.9% only if we establish other commercial partnerships.

Italy is half-way through a long transition period and now and then concerns arise about the affordability of its public debt. Is this also a concern of yours? Is Crédit Agricole going to continue to invest in Italy?

We are certainly going to continue to invest in Italy, which is already our second domestic market. We have been operating there for over forty years, we appreciate Italy and we participate in the Country's life, also providing support to local communities. We support our relationship with the communities. We have trust in this Country and in its economy. We do not think in any way that Italy is a problem. There is a public debt issue, as shown by yields that are getting close to Greece's ones. But, in the medium and long term, we are optimistic about Italy.

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