Following the long-awaited onset of Europe’s economic recovery, the French investment banking and insurance sector is experiencing a revival of sorts and stronger sales as result of a greater volume in activities. The stimulus programme implemented by the European Central Bank has so far been successful in promoting trading within the region’s financial markets, while also creating a more favourable environment for the industry and lifting the earnings of European banks.
The Crédit Mutuel Group stands out among the most prominent in the sector, in terms of its recent performance and the consistency – regardless of the ebb and flow of the European financial landscape.
Since its formation, Crédit Mutuel Group has worked tirelessly to create a vivacious network of clients and shareholders. This has been achieved through the company’s mantra of tailored service, which is seen as fundamental to the business. The group’s organisational structure has also contributed significantly to its ongoing success; by creating an environment conducive to outstanding teamwork, high productivity and smooth internal operations are realised on a daily basis. World Finance had the opportunity to speak to Michel Lucas, Chairman of Confédération Nationale du Crédit Mutuel, about how the group achieves enduring success, even during challenging economic periods.
€708.8bn
Total savings
€305.2bn
Customer deposits
€15.4bn
Net banking income
Democratic approach
Established as a cooperative bank in 1947, shareholders own the group’s equity capital and also direct the company’s strategy through a democratic approach. “We pursue development by remaining resolute to our founding values: solidarity, responsibility, equality, proximity and transparency”, said Lucas. “Proper company management, which is essential to the company’s long-term success, does not seek to enrich a group of shareholders. This makes it possible to ensure steady growth, together with the best possible service at the lowest cost.”
This decentralised organisational structure thus promotes greater employee involvement at every level – local, regional and national – and achieves excellent responsiveness and superior service. This arrangement also enables an efficient decision-making process, together with better risk diversification and improved quality control.
As a mutual company, Crédit Mutuel Group is not listed on the stock exchange, while, as Lucas explained, “Its sustainable development strategy is not focused merely on short-term returns. The Crédit Mutuel financial cooperative cannot be sold, as it is inalienable.”
As a leading banking and insurance company in France, the group comprises the Crédit Mutuel network and all of its subsidiaries. The wide reach of the its two main retail bodies – Crédit Mutuel and CIC – has recently been complemented by Targobank and Cofidis – together they constitute a network that has almost 6,000 points of sale. While CIC, the retail banking subsidiary that is located in the Paris region, has a sweeping presence itself, comprising of five regional divisions, as well as specialised subsidiaries in all finance and insurance business streams. Crédit Mutuel Group’s local banks are located in 18 regional federations; as each federation is a member of the Confédération Nationale du Crédit Mutuel, the group’s central administrative entity, an encompassing scope across the country is facilitated with relative ease.
Growing stronger
In terms of its financial strength, Crédit Mutuel Group continues to grow through its efforts to bolster all of its regulatory capital ratios. “With nearly €44bn in shareholders’ equity attributable to the group, which is up by 9.1 percent, the group has a CET1 ratio of 15.3 percent and one of the strongest balance sheets in Europe”, said Lucas. “The quality and solidity of the group’s assets have been confirmed by the European Central Bank (ECB) and European Banking Authority (EBA), which ranked it first among the leading French banks and among the safest European banks following the stress tests of 130 European banks carried out in October 2014.”
Crédit Mutuel Group ended 2014 with a net income of more than €3bn, thereby exhibiting an impressive growth rate of 11.4 percent. “It’s worth remembering that Crédit Mutuel is not just a bank. Its insurance, telephone and customised remote surveillance activities complement the traditional banking business, constituting additional services that help to satisfy the needs of shareholder members as closely as possible”, said Lucas.
Crédit Mutuel Group owes its results to the dynamism and expertise of its 78,000 employees and 24,000 directors, together with their ability to develop trust-based relationships with customers. In order to maintain this strength, the group pays special attention to training both its employees and volunteer directors. “It is they who represent the group, and their professionalism constitutes one of the keys to its development”, said Lucas. Leading on from this belief, professional training at Crédit Mutuel Group has become increasingly prominent, particularly as new technologies play a greater role in the lives of consumers.
Pillars of strength
Along with the bricks-and-mortar branch network, the group provides its customers with full online banking and insurance access. Crédit Mutuel Group places a strong importance in providing a local service that is easy to access, together with a portfolio of simple products that are especially adapted to meet customer needs. High standards of clarity and transparency are also carefully maintained features of the organisation, as is the security it can offer, which is predicated on the group’s financial strength.
Understanding customers is at the heart of the organisation’s strategy and forms an integral part of the culture at Crédit Mutuel Group. “Customer satisfaction is based on the group’s three pillars: stability, security and service quality, which together, guarantee trust”, said Lucas. This structure requires measured growth, notably in regards to the loan-to-deposit ratio, as well as improved profitability in equity capital and risk management. “These three pillars are strengths that make it possible to continue improving the service given the group’s 30 million customers in France and the rest of Europe.”
This philosophy works together with a strategy that alternates between organic and external growth on the one hand – and the consolidation of acquisitions on the other. In the span of just a few years, Crédit Mutuel Group has expanded its international position through various strategic deals. The purchase of Germany’s Targo Bank and French group Cofidis are major new growth paths for the company in Europe and also in terms of its scope for consumer credit. Similarly, Assurances du Crédit Mutuel (GACM) has successfully gained a foothold in Spain and continues to grow there, as evidenced by the acquisitions of RACC Seguros, Agrupacio, and most recently Atlantis. In 2014, international business represented 16.8 percent of Crédit Mutuel Group’s net banking income – showing growth of 4.7 percent since 2005.
Sustaining momentum
As a leading retail bank, Crédit Mutuel Group has helped to support the economy across all of France’s regions, while also developing strategically significant partnerships abroad. “The group owes its results first and foremost to the vitality of its networks and dynamic sales growth. These factors enable Crédit Mutuel Group to serve a variety of clients, from retail customers and associations to professionals and companies on an optimal basis, allowing them to achieve an excellent volume of business through the group’s far-reaching networks and diversified business lines”, said Lucas.
The group’s total savings in 2014 had grown by 6.9 percent to €708.8bn, while customer deposits increased by 4.8 percent to €305.2bn – excluding the contributions made by Société de Financement de l’Economie Française. This growth essentially stems from sight deposits and home savings plan deposits (see Fig. 1), which last year showed 10.7 percent growth to €95bn and 10.4 percent growth to €30.1bn respectively, thereby illustrating the behaviour and growing prudence of households in a low-interest rate environment. Dissimilarly, Livret Bleu and Livret A passbook savings accounts were adversely impacted by a reduction in their interest rates and made less headway, growing only 0.7 percent to €38bn, in 2014.
The share of savings centralised with Caisse des Dépôts et Consignations was 56 percent, representing a total of almost €33bn. As such, repurchase agreements with new customers are now accounted for as deposits in order to better reflect the economic reality of these short-term financing transactions. Insurance savings increased by 6.6 percent to €114bn as a result of healthy inflows from customers within a context of falling regulated savings rates, while bank financial savings of €289.6bn exhibited strong growth that amounted to 9.5 percent. Both areas of growth were underpinned by the high business volumes carried out by the group’s specialised businesses, as well as several acquisitions made over the course of the year, resulting in a 15 percent share of the French market for deposits.
In terms of lending, outstandings rose by 4.3 percent to €364.8bn, while housing loans grew to €189.4bn last year, making up 52 percent of the group’s lending breakdown (see Fig. 2). Growth in consumer loans accelerated thanks to an increasing number of new loans in group’s network and subsidiaries, with outstandings climbing by 2.2 percent to €36.5bn. Amid a restrictive economic environment, the group also stepped up its activities with individual business owners, leading to substantial increases in equipment loan outstandings and leasing outstandings. Also of note in 2014 was an accounting classification change for securities held in repo.
A good year
In 2014, net banking income increased by 1.4 percent to €15.4bn, benefiting chiefly from the group’s robust insurance business, which paved the way for an 8.7 percent increase in revenue earned on insurance activities and an appreciation of the fair value through profit or loss portfolio (notably in the private equity business). The net interest margin on customer transactions also improved despite the persistent low interest rate environment, while net commission income also grew slightly by 0.8 percent.
Following the exceptional stability seen in 2013 that saw no increases in general operating expenses, such costs rose by 2.5 percent last year, largely as a result of ‘other operating expenses’, which had climbed by five percent to €3.39bn in 2014. As a result, although the other components remained stable, the cost-to-income ratio reached 64 percent, compared with 63.3 percent in 2013.
Another positive result for the group was the 23 percent reduction in the cost of risk to €1.05bn. “This decline concerned both the actual net provision for known risks, which had decreased by €241m, and the net provision allocations/reversals for loan losses. This trend reflects our rigorous risk management combined with the team’s dynamism in their relationships with customers”, said Lucas. The proportion of non-performing loans also fell in 2014 from 4.4 to 4.3 percent. Net income attributable to the group totalled €2.95bn, showing a growth of 11.5 percent from the previous year, with its banking and insurance arms contributing the majority of this revenue.
At the close of last year, the group held a 17 percent share of France’s retail bank lending market. “The continued improvement of the loan/deposit ratio, from 147.1 percent five years ago to 119.5 percent in 2014 shows the group’s decreasing dependence on the markets for its refinancing”, said Lucas.
With expansion plans afoot and a more stable environment to operate it, the scene seems set for the continued growth of the French giant, or as Lucas put it, “Committed to both deliberation and action, Crédit Mutuel is pursuing its development by relying on the participation of its employees and elected directors looking to build a strong, human and unified Group, the Crédit Mutuel of tomorrow. More generally, faced with the limitations of the all-provident State, we must rediscover the power of individual initiative and its collective face: cooperation.”
