BPCE reported a decent set of results with P&L performance driven by a rebound in the investment bank (particularly fixed income trading) and resilient asset quality in France across the retail banking networks helping to keep provision charges in check. Costs were stubbornly high, despite cost-cutting initiatives across the bank. In terms of balance sheet trends, the loan to deposit ratio continues to decline driven by an increased focus on deposit collection and managed loan growth. Funding progress was notable as well with BPCE achieving an EUR 8bn reduction in funding needs over the quarter (EUR 30bn achieved yoy) via asset sales/redemptions in the investment bank/legacy asset portfolio and reduction of the commercial banking operations funding gap via increased deposit collection. Liquidity buffer remains strong at 130% of short-term funding needs and capital increased 40bp in the quarter to 10.5%.

P&L analysis

Underlying 3Q12 net income for BPCE came in at EUR 726m (4x 3Q11 low levels, heavily hit by provision charges on Greek sovereign debt). Underlying revenues were up 5% yoy driven by a rebound in wholesale banking performance, operating expenses (including new fiscal measures) were up 6% and underlying provisions (ex-impairments on Greek sovereign debt in 3Q11) were up 14% yoy. Underlying pretax profit was down 14% yoy. Focusing on the core business lines, including commercial banking & insurance, wholesale banking, investment solutions and specialised financial services, revenues were up 3% yoy, operating expenses up 5% yoy and provisions down 11% yoy. As a result of the above, pretax profit came in 4% higher yoy.

Divisional analysis

  • French retail banking (Banque Populaire and Caisse D'Epargne networks): revenues were flat yoy despite moderate loan growth, reflecting some net interest margin compression and lower fees & commissions. Operating expenses were up 5% yoy, partially offset by lower provision charges (down 23% yoy). Pretax profit was down 7% yoy. Balance sheet trends were positive with deposits up 7% yoy and loans up 4% yoy in the BP network, and both loans and deposits up 9% yoy in the CE network. Asset quality trends remain benign with NPLs for CE networks at 5.1% and at 2.1% for BP networks, both stable qoq.

  • Real Estate Financing (Crédit Foncier): Challenging performance given decline in RE financing activity in France. Revenues were down 18% yoy, costs were broadly flat and impairments declined to EUR 28m from EUR 51m in 3Q11. Pretax profit was down 60%. Stock of loans outstanding was down 4% yoy as a result of a number of disposals and gross loan production in the 9M12 was down 21% vs 9M11.

  • Insurance: Pretax profit up to EUR 55m vs EUR 4m in 3Q11 (low base due to provisions on Greek sovereign debt). Life assurance premiums were down 17% yoy vs better performances in non-life (premiums up 6% yoy) and provident & health insurance (premiums up 43% yoy).

  • Wholesale banking (Natixis): Revenues rebounded yoy at the investment bank vs a low base in 3Q11 driven by a good performance in fixed income trading and resilient performance in structured financing. Revenues were up 25% yoy, operating expenses up 2% and provisions ticked up to EUR 79m vs EUR 41m in 3Q11. Pretax profit almost doubled yoy (up 80%) to EUR 210m. Natixis continues to optimise its Financing activities by divesting the commercial banking book (down 17% yoy).

  • Investment solutions: Good performance from the asset management businesses with AUMs up nearly 10% yoy driven by improved asset collection in the US affiliates. From a P&L perspective, revenues were up 17% yoy, operating expenses up 10% and pretax profit up 52%.

  • Specialised Financial Services (SFS): Strong commercial dynamism in consumer finance activities with outstandings up 19% yoy (albeit from a low base) as the bank increases its focus on product roll out through the French networks. Revenues were down marginally yoy, costs were flat and provision charges slightly ticked up resulting in pretax profit down 10% yoy.

  • Equity interests (Coface, Nexity and Private Equity): Flat performance yoy with marginally higher revenues from Coface (credit insurance business) offset by slightly higher costs. Pretax profit was flat yoy.

  • Legacy assets: Portfolio size is down 22% yoy to EUR 16.2bn and asset valuations improved in the quarter, leading to positive revenues of EUR 104m and positive pretax contribution (first in 7 quarters) of EUR 48m.

Balance sheet, funding and liquidity trends

Balance sheet trends are positive with the loan to deposit ratio in the commercial banking side down 1% qoq to 115% with an emphasis on deposit collection. Over the quarter, BPCE was able to reduce funding needs by EUR 8bn due to a combination of asset divestments in wholesale banking, legacy asset sales/redemptions and reduction of the commercial banking operations funding gap via increased deposit collection. Year to date, BPCE has reduced funding needs by a combined EUR 31bn vs initial target of EUR 30bn. From a liquidity perspective, BPCE's liquid asset pool now stands at EUR 150bn or 128% of short-term debt.

Asset quality

Group NPLs stand at a moderate 3.7%, stable qoq and up just 20bp ytd. Coverage ratio also remained broadly flat at 53%. In France, NPLs stand at a low 2.1% for the Caisse D'Epargne network and a moderate 5.1% for the Banque Populaire network (blended 3.5% NPLs), both stable in the quarter reflecting benign domestic asset quality trends.


Core Tier 1 now stands at 10.5%, up 40bp qoq on the back of RWA reduction (down 1%), earnings accrual and issuance of cooperative shares. Guidance for fully loaded Basel 3 is at least 9% for end-2013.

(Source: Royal Bank of Scotland)