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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%.
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.
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.
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)
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