Credit Agricole SA (CRARY) Q2 2016 Results - Earnings Call Transcript

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Credit Agricole SA (ADR) (OTCPK:CRARY)

Q2 2016 Earnings Conference Call

August 03, 2016 04:00 AM ET

Executives

Jerome Grivet - Managing Director and CFO

Analysts

Flora Benhakoun - Deutsche Bank

Jean-Francois Neuez - Goldman Sachs

Guillaume Tiberghien - Exane

Alex Koagne - Natixis

Maxence Le Gouvello - Jefferies

Delphine Lee - JP Morgan

Jean-Pierre Lambert - Keefe Bruyette and Woods

Stefan Stalmann - Autonomous Research

Pierre Chedeville - CM-CIC

Geoff Dawes - Societe Generale

Jacques-Henri Gaulard - Kepler Cheuvreux

Robin Down - HSBC

Nick Davey - Redburn

Kiri Vijayarajah - Barclays Capital

Jerome Grivet

Good morning to every one of you. I understand that I am probably together with my SocGen colleague one of your last hurdles before you go to vacation so we'll try to make it as swift and efficient as possible today. I'm starting on page three of the presentation. You have the figures, global figures of the net profit both for the Group and for Credit Agricole SA, both for the stated profit and for the underlying profit and both for the quarter and for the semester. I just want to mention two or three of these figures. Net profit for the Group for the quarter of €1,942 million, up nearly 30% as compared to last year. For Credit Agricole SA net stated profit of €1,158 million, up 26%. And as far as the underlying profit is concerned €818 million, it's an increase of 13% as compared to the second quarter last year.

If we go now to page four. The main events of the quarter besides this good level of results which was led by the strong business momentum in all business lines and a good protection of our prudent risk profile, I think we can mention the fact that the Group's CET1 ratio increased up to 14.2% at the end of this quarter. We also can mention that the EBA stress tests, which were published by the end of last week, confirmed the Group's financial strength with a CET1 ratio of the Group which stands at 10.5% after three years of severe stress scenario which is above any regulatory requirement that applies to the Group. And last point but you aware of that, we had been upgraded by Moody's a little bit earlier in July. We have now a rating of A single A1 for the Group and for the main subsidiaries of the Group.

If we go now to page five. Just here to confirm that the Eureka transaction we announced a little bit less than six months ago is going to be fully completed today. All the technical operations consisting in the transfer to the regional banks of the CCI and CCA are going to be completed today and this is going to lead to some quite significant financial impacts at CAsa level which are going to be booked during the third quarter. We'll book a net profit linked to this transaction which will be around €1,250 million. This is going also to improve the pro forma solvency ratio of Credit Agricole SA. This will push this CET1 ratio from the 11.2% level that we've reached by the end of June this year up to 11.9%, so an increase of 70. I remind you that, as you are aware of, all this transaction has no impact at Group level because this is a pure intragroup transaction.

If we go now specifically to the results and to the figures of Credit Agricole SA itself. On page seven we can confirm that this quarter proved again the resilience of the business model of Credit Agricole SA and its business lines with a sustained level of activity in all business lines. What is interesting to notice, but I will come back to this a little bit later on we have in many business lines we have had an increase of the net banking income between the first and the second quarter this year. We also had a very strong momentum in commercial performances in all business lines, insurance, consumer finance, CIB, asset gathering. The net income Group share, as I said, stands at €1,158 million including the disposal gain on VISA and €818 million up 13% in terms of underlying performance. Again, we mention the CT1 ratio of 11.2% which is already above our medium term target of 11%.

I think we can go rapidly on page eight, because it gives only some details and some color on the economic and commercial performances of the different business lines. We can go directly on page nine, where you can see that indeed even outside the VISA capital gain the underlying performance of the business lines and of Credit Agricole SA globally improved by 13% between the second quarter 2015 and the second quarter 2016. It's a solid improvement of the underlying profitability of Credit Agricole SA.

On page ten, you have some elements of information on the way we go from the stated performance to the underlying performance. As you are probably aware of, it's now a request from the French Market Authority to give all those details in the course of the presentation. I think this information usually you have them in the appendix, but here they are just in the course of the presentation.

We can skip rapidly on it and go directly on page eleven, where you can see the evolution of the revenues of Credit Agricole SA between the second quarter 2015 and second quarter 2016 and we also wanted to show the improvement between the first two quarters of 2016. So as far as the evolution between the second quarter of 2015 and the second quarter of 2016 is concerned, the slight improvement of the net banking income, the underlying net banking income, 0.5% comes from the corporate center.

But if you take a closer look at the evolution between the first and the second quarter this year what you can see is that we have had an improvement in the retail banking activities both in France and abroad mainly at Cariparma in Italy. We have had a certain stability of the level of revenues in the asset gathering division. We have had a slight increase in the specialized financial services division. We have had a very significant improvement in the large customer division and we have had stability at an improved level of the corporate center.

If we go now to page twelve, what you can see on the expenses side is that we continue to keep the expenses of the Group under a very tight control because indeed it decreased by 0.8% between the second quarter 2015 and the second quarter 2016. If we exclude two one offs I would say, a specific provision that we booked within LCL in order to cover the future costs of the restructuring of the network and a complement of costs covering the contribution of the Group to the Single Resolution Fund. You know that usually this contribution is booked in the first quarter but we didn't have, at this time, enough information from the ECB about the final cost of this contribution for us. It proved to be even greater than what we had expected in the first quarter, so we had to book at additional €43 million of cost in this quarter.

If we go to the cost of risk, Page 13. What you can see is that it remains more or less stable. I'm talking about the cost of credit risk. It remains more or less stable at a low level both at Group level, around 30 bps and at CAsa level 41 bps as compared to the total loan outstanding. If we zoom a little bit on the cost of risk by business line, this is on Page 14. You see the continuation of the decrease within the consumer credit division and within Cariparma; you can see that in the retail banking activities it remains at a very low level, below 20 bps for the Regional Bank and even below 15 bps for LCL. At CIB it increases a little bit but as this is the all in figure over the last four quarters that we present here. We have a basis effect I would say which is linked to the fact that during the second quarter 2015 there was almost no cost of risk within the CIB division.

If we zoom now a little bit on the performances of the main business lines we can go directly on Page 16, where you see some elements regarding LCL, which is after the completion of the transaction, the element of French retail that we keep within the scope of Credit Agricole SA. What we can see and what we can say is that LCL continues steadily its transformation and delivered actually a good quarter from a commercial and economic point of view this quarter, second quarter 2016, with loans outstanding growing by 4.5% over the whole year. It's been even more steady within the small business and corporate segments. We also had a growth in on balance sheet deposits and we had also a very healthy, very dynamic performance in the cross selling action plan that we've taken. We took two examples there, in property and casualty insurance.

The number of insurance policies that were sold by the network of LCL grew by 24% as compared to the same period last year. In the protection insurance business, the growth was even more impressive with an improvement of 67% over one year. So this proves that the policy that we have to better exploit the customer basis that is created through the increase in home loans is indeed working.

We also launched this quarter the branch network optimization project that was announced within the medium term plan that we published on March 9. This is why we are booking this quarter the cost of EUR41 million in order to cover the cost of the network optimization and indeed the reduction of the number of branches. We were talking about a reduction of around between 200 and 250 branches during the course of the medium term plan. What we can see this quarter is that after two quarters of decrease in the rate of early repayment and renegotiation there is a small pick up and this is why we are trying to work on the capacity for LCL to continue to adapt to this low interest rate environment.

The pressure is going to continue probably on the yield of the asset side of the balance sheet because this renegotiation are leading to a decrease in the average customer interest rates on the loans. We are working and we are considering trying to adapt also the cost of the resources of LCL. We are considering to implement before the end of this year a liability management operation dedicated to the perimeter of LCL as we did in the beginning of this year for the whole Group. This is going to enable LCL to continue to develop its business, both the lending business and the fee business in this low rate environment.

In terms of economic performances and financial performances, as I already mentioned, we indeed saw a decrease in the net banking income between the second quarter of 2015 and the second quarter of 2016. But we have seen, on the other hand, an improvement between the first and the second quarter of this year and in the context of very tight cost control and a continuous low cost of risk, this is making it possible for LCL to continue to preserve a net profit above EUR100 million this quarter.

As far as Cariparma is concerned, I'm on page 17, we see more or less the same tendencies. I mean a good commercial momentum and a growth in the loans outstanding, a growth in the customer assets. We saw a little decrease and even a significant decrease in the net banking income between the second quarter 2015 and the second quarter 2016 but an improvement between the first two quarters of this year. We see also the continuation of the very tight cost control that we maintain on Cariparma. And last point, the cost of risk continued to decrease quite significantly, minus 17% between the second quarter 2015 and the second quarter this year. We also see the impaired loan ratio again down a little bit, an improvement of the coverage ratio and a continued reduction in the inflows in default.

For the rest of the retail banking activities abroad, nothing much to say, things are going well locally in all four countries where we are located. We simply have a ForEx effect that brings down a little bit the net profit when it's translated into Euros but the underlying economic performance of the four banks is very satisfying and all in all during the first half of this year the net profit of the division almost doubled.

If we go now to the asset gathering activities, what I can mention globally, it's on page 19, is that the assets under management for each of the activities of this division improved. This is the case for Amundi which reached the famous €1,000 billion of assets under management threshold. But it was also the case for the insurance activities. As far as the wealth management activities, the level of €150 billion of assets under management was also preserved. All in all the division shows an improvement of the net profit of nearly 9% for the first half of the year.

On Amundi specifically as I said the target of €1,000 billion was reached and this was reached thanks to net inflows which were very dynamic in the first half of the year, nearly €17 billion mainly on medium and long-term assets, driven by retail segment and retail customers and driven mainly by the international partnership with retail banks, more than 70% of these inflows coming from Asia.

The net income at the Amundi level is more or less stable. It's a little bit decreasing at CAsa level. Again this is due to the dilution that we had in the capital of Amundi when it was IPO'd at the end of last year. Within the insurance activities, what we can see is that in savings and retirement we managed to increase a little bit the level of unit linked products in the total turnover of the second quarter as compared to the first quarter so we reached a level of a little bit above 21%.

In P&C activities, we continued to gain market share and very importantly, I also want to mention that even if the French market was impacted by significant weather events, we managed to keep the combined ratio at a very good level, around 96.5% for the first half of the year. In protection, death, disability, both individual and Group policies again a very good quarter with an improvement of the turnover of 12%. All in all this division improved its net profit by nearly 17% quarter on quarter.

If we go now to the specialized financial services, we have had an overall very good quarter in terms of production of new loans within the consumer credit and car financing activities. It's been also the case within the leasing and factoring activities. In this context and thanks to a good cost control and to a continuous decrease in the cost of risk, the net profit of the division again improved by nearly 25% on the quarter and nearly 50% on the semester, on the first half of the year. I maybe just want to comment an additional point, is that as we had stated it during the presentation of the medium term plan in March this year, CACF is steadily applying its asset light policy.

As you can see, the proportion of assets managed by CACF that are consolidated within CACF continued to decrease. It's now a little bit below 44%. As far as the large customer division is concerned, I think we can say we had a good second quarter this year even though market conditions were and remain challenging. If you compare the revenue of the CIB activities and of the large customer division globally quarter-on-quarter, you can see a slight decrease by 5%. Actually if you restate it from the CVA and FVA, we have had an increase of above 6% quarter-on-quarter, which is a very good performance.

This performance is spread over most of the sub activities of this division. It's been the case for the capital market activities with revenues very significantly up quarter-on-quarter, plus 17%. It's been the case also of the investment banking activities. In structured finance, the revenues were stable. In the commercial banking activities, revenues were a little bit impacted by the oil prices because even though oil prices had increased since the beginning of this year if you compare to the second quarter of 2015, there is a decrease and it's been impacting part of the commercial banking activities. And last point, in the asset servicing division we have a significant growth in revenues, plus nearly 5%, which is linked to the fact that we are now rebilling negative interest rates to the institutional customers of these activities.

Operating expense we're stable if we exclude an additional Single Resolution Fund contribution. The cost of risk is more or less stable as compared to the first quarter this year if you exclude a €50 million specific and general litigation provision that we have decided to book this quarter within CACIB.

If I go now to page 26 just to give you a few elements on the performance of the regional banks. This quarter, as you know, since the beginning of this year we no longer take into account the contribution of the regional banks within CAsa's net financial performance in connection with the transaction that is going to be completed today but we nevertheless remain of course very much, I would say, interested in the development of the business of the regional banks both because it's adding up some results and very significant results at Group level and also because this is on the basis, on the customer basis of the regional banks, that's a significant part of the further development of the business line of CAsa is going to lie in the future.

What we can see is that as was the case for LCL, the regional banks indeed managed to gain market share in terms of loans and lending activities this quarter. Their level of revenues were more or less stable, restated from the home loan saving plan provision. The cost of risk again within the regional banks remain very low, below 20 bps.

If we now go to some balance sheet information for Credit Agricole SA and for the Group. On page 28, we can start with the evolution of the CET1 ratio of the group. As I already mentioned, it stands at 14.2% at the end of June this year which is an improvement of 30 bps on the quarter and an improvement of 100 bps for the whole year, the last year.

This improvement is linked to the significant capacity of the Group to retain earnings. It's also a little bit linked to the moderate increase in the level of RWA at Group level, around €10 billion of increase within the quarter.

What you can see is that the leverage ratio is and remains at a very comfortable level, 5.6%. And last point, you may notice that the total capital ratio decreased a little bit from 19% down to 18.9%. This is linked to the fact that we are managing actively as we always do our Tier-2 debt but for the time being we are not replacing this debt because we are waiting for the new French law on the new category of senior non-preferred debt. We are going to issue some of these debts probably before the end of this year once the French law is going to be adopted.

On page 29, you have the summary of the results of the stress test for Credit Agricole Group. As I said, under the severe stress scenario, the CET1 phase- in ratio of the Group decreased by 300 bps from 13.5% at the end of last year down to 10.5%. Again 10.5% corresponds to the current level of the SREP that is assigned to the Group including the fully loaded systemic buffer that applies to Credit Agricole Group. We are probably one of the few European banks in a situation to say that after three years of severe stress scenario we continue to respect all our regulatory requirements. The chart on the bottom side of this page shows the positioning of Credit Agricole Group within all the systemic institutions, European institutions.

At CAsa level, as I said, the CET1 ratio improved this quarter by 40 bps from 10.8% up to 11.2%. This is linked to the level of profit that we booked this quarter. This is also linked to the fact that this quarter we've been paying, and this was the last occasion this year, we've been paying our dividend partially in shares so this improved also the capital ratio of Credit Agricole SA this quarter. The improvement over the last year is also an improvement of 100 bps. So with this level of 11.2% with the coming effect of the Eureka transaction of an additional 70 bps, we now stand at a very comfortable level of capital which would be pro forma at 11.9%. As far as the TLAC and ratios are concerned, nothing much to say, because again we are already and without any element of eligible senior debt at the level of the future 2019 requirements, so I think nothing more to add on this one.

On liquidity, what we can say is that with a surplus of long term funding resources above EUR100 billion we are completely in-line with our management targets. Ratio of stable liabilities to long term assets is also stable, above 110%. In terms of liquidity reserves, nothing much to say. They cover more than two times the short term debt that is not deposited within central banks. As far as long term funding, we, as usual, have covered the biggest part of our long-term funding program of this year by the end of June. Actually we've covered nearly 80% of the program of Credit Agricole S.A. with 11 billion of debt issued in the market, 9.5 billion of senior debt, 1.5 billion of subordinated debt. Again, we are waiting for the new cash flow in order to complete the subordinated debt issuance that we have for this year.

Nothing much to say on that. So I think I've covered the main elements of information on this presentation. We can go now to your questions. I understand there are already some questions.

Question-and-Answer Session

Operator

[Operator Instructions] We will now take our first question from Flora Benhakoun from Deutsche Bank. Please go ahead your line is open.

Flora Benhakoun

Good morning. Flora speaking from Deutsche Bank.

Jerome Grivet

Good morning.

Flora Benhakoun

I've got two questions for you. Both of them are actually on the capital ratio, core Tier 1 of Credit Agricole S.A. My first question is actually on the dividend. You've guided for a 50% payout, and I was wondering whether you could clarify off what basis you are going to apply this 50% payout, whether it's indeed from the stated EPS or the reported EPS. The second question is regarding the 40 bps that you have paid in the quarter at CAsa level in core Tier 1, whether you could clarify what are the 8 basis points in other and the quantified impact from the scrip for the full year 2015. Thank you.

Jerome Grivet

As far as the dividend policy is concerned, I think the situation is very clear. We are committed to a long-term policy which is to pay 50% of our results in cash to our shareholders. So this is a commitment, but as you can understand, we are only at the end of the first half of the year, so we are going to wait up to the end of the year to fix the precise level of dividend within this commitment and this general policy, and with the target I would say, the objective to give also and to provide to shareholders a certain visibility and a certain sustainability on the level of the dividend itself in absolute terms.

So we have a policy. This policy is confirmed. This is a 50% payout policy in cash. Then we have a preoccupation, I would say, which is to give to the shareholders as much visibility, clarity and predictability as possible. So we are going to assess by the end of this year the level of dividend in euro terms, I would say, to which it's going to lead us. As far as the evolution of the CT1 ratio of Credit Agricole S.A is concerned this quarter, you can take a look on page thirty, the biggest part of the evolution, 31 bps, is linked to the retained earnings of the period plus the fact that again we have distributed the 2015 dividend partially in stock leading to an improvement of the capital ratio.

Then we have had a small improvement of globally the AFS reserves. Then we've summarized all the other effects in the other category. In this category, you have some technical effects, because as we had stated when we presented the medium term plan, we are working in certain division on the improvement of the way we compute the RWAs. So we knew that we had some potential technical improvements. Also we have on the other direction a certain increase in the level of RWAs which are linked to ForEx effects, which are linked to the development of the business line and which are linked also to some technical effects. So, this is the result of all these movements that produces this improvement of 8 bps which we've put under the other category.

Flora Benhakoun

Thank you. If I can just follow-up on the first question. The question was whether to understand, for example, if you're going to apply the 50% payout also to the gain that you get from VISA and Eureka.

Jerome Grivet

Yes, I understand that this was your question, but my answer was that we are committed to a policy and we are also trying to give again as much predictability and visibility to the shareholders. So we have to take into consideration of course the commitment that we have, and it's a commitment; but also the evolution in the medium and long term of the dividend itself.

Flora Benhakoun

Okay, thank you.

Jerome Grivet

Thank you.

Operator

We will now take our next question from Jean Neuez from Goldman Sachs. Your line is open. Please go ahead.

Jean Francois Neuez

Hello, good morning. Just wanted to ask you a quick question on credit quality. So, the provisions obviously they're still at a very low level in terms of basis points. I just couldn't help noting that in your balance sheet section of reporting, your NPLs are up 2% this quarter and they are up 7% year-to-date at Credit Agricole S.A. level. The coverage ratio also looked to drop this quarter. I said now your provisions are already at a low level. But the question is, what is the trajectory there in terms of NPL and what's driving the increase, and is there a change in the underlying trajectory of cost of risk to be expected going forward? Thank you very much.

Jerome Grivet

No, Jean Francois, we are not modifying the global guidance that we have on risk. We are in an environment where the level of the real cost of risk is low. It's actually below the cost of risk that we've, I would say, booked and computed in the medium term plan that we've presented on March 9th. Because you might remember that for the CAsa perimeter, we said that our medium term end target is compatible with an average level of 50 bps of cost of risk. We stand now at 41 bps. So the level is low.

As far as the increase in the level of NPL is concerned, I think you have different elements there coming from different divisions where the rules are different. For example, in the consumer credit division we've been modifying certain triggers in order to define what is a defaulted loan. This is, I would say, one off modifying the amount of NPLs of this division. In the CIB division, there is another phenomenon, which is linked to the fact that for some counterparts we have this is the case in the U.S. some external agencies, American agencies that provide us with information on what we should consider as an NPL and what we shouldn't consider as an NPL. So we take that into account in the computation of our NPL. But the level of NPL that we have globally for the groups and for each division remains low and we don't foresee any deterioration of the cost of risk.

Jean-Francois Neuez

Also to ask you on the CIB business whether there was anything that you would deem or guide us to take as exceptional in particular in the trading division some banks have said that their Brexit week was exceptionally high and it might not reproduce. Just trying to get the right base for comparison going forward.

Jerome Grivet

No, actually the trading days after June 23 were, I would say, rather normal days for CACIB with no negative daily P&L, no exceptionally high levels of daily P&L, and level of VaR which remained more or less stable. This is only confirmation that actually CACIB is a very low-risk profile of CIB, if it was necessary to confirm that.

Jean-Francois Neuez

Excellent.

Jerome Grivet

The only specific item within CACIB this quarter is the €50 million of legal provision I already mentioned.

Jean-Francois Neuez

Thank you very much. Very clear.

Operator

We will now take our next question from Alex Koagne from Natixis. Please go ahead, your line is open.

Alex Koagne

Hi, Jerome.

Jerome Grivet

Hi, Alex.

Alex Koagne

Two question from my side. The first one is again on the dividend. Your ratio is growing very fast. Your word above your guidance included the management buffer. Would you consider going back to a cash dividend for this year?

Second question is on the IPS statute. My understanding is that the ECB has already released the final text he will use to answer to the request, now that you have finished the transaction with the regional banks, when do you expect to have an answer from the ECB?

The last question is on the management liabilities you plan to do at LCL. I was just wondering whether this would affect your guidance in terms of revenue growth by 2019 or it is just a mitigate effect that will just confirm your guidance. Thank you.

Jerome Grivet

On dividends, as you might remember, Alex, we have already said that we were going back to a cash dividend as soon as the 2016 results, which means that indeed, we are intending to pay a cash dividend on the 2016 results. This is the way actually our capital ratio is computed. We already deduct from the earnings that we make 50% of these earnings in order to provision for the future dividends. So this is really the policy that we intend to apply starting this year.

As far as the IPS statute is concerned, of course we have taken a careful look at the latest publication of the ECB on the IPS status. To be frank, this careful look didn't help us much in finding some major elements of this statute that can be of significant advantage for Credit Agricole Group and for Credit Agricole S.A. for the time-being.

But again, we are on the course of completing today the Eureka transaction. We are implementing steadily medium-term action plans that we've unveiled a few months ago now. So one thing after the other, please.

Last point on the liability management transaction that we are considering for LCL. This is really, as I said, to make it possible for LCL to adapt to this context where interest rates are indeed after the Brexit vote even lower than what we had in mind. So this is not modifying the guidance that we have on the LCL. This is an element, among others, of the action plans that we are taking in order to put LCL in a situation to apply its own medium term plan. So we are transforming the network. We are accelerating on the cost saving and we are adapting the structure of the balance sheet of LCL to this context of very low interest rates so nothing has to be modified in the overall guidance for LCL. We still, I would say, confirm the financial target that we've set for LCL for 2019.

Alex Koagne

Thank you. If I just ask one follow-up question, it's on your SFS division. I'm a bit surprised by the level of loan growth, which is 6%, and same revenue down 1%. I was wondering what is the underlying before this, let's say, negative draw effect. Thank you.

Jerome Grivet

Very good question, Alex, but as I said you have to make a difference between the loan book that is managed by CACF, which is growing indeed by 6%, and the loan book that is consolidated within LCL. The first part of the loan book, the one which is, excuse me, SFS, CACF. So the loan book that is consolidated is leading to revenues which are booked as net banking income. But as far as the loan book which is managed but not consolidated by CACF, you find the translation in the P&L of CACF in the equity accounted contribution.

Alex Koagne

Okay.

Jerome Grivet

So this is the main reason why.

Alex Koagne

Sure.

Jerome Grivet

In addition to that there is a slight modification in the breakdown of the allocation of the loan consolidated within CACF with less revolving credit and more amortizing credit, so that the average margin is decreasing a little bit.

Alex Koagne

Okay. Thank you.

Jerome Grivet

Thank you.

Operator

We will now our next question from Guillaume Tiberghien, from Exane. Your line is open, please go ahead.

Guillaume Tiberghien

Good morning. I've got three questions. The first one is on the liability management exercise you highlighted. I just out of interest wanted to know how much you were ready to allocate to that exercise and whether conveniently you could offset the VISA gain so that your dividends can be on both reported and underlying earnings. The other one is on the litigation. EUR50 million doesn't seem a big number, but I was just wondering whether you could give us a flavor as to whether it's the beginning of a new trend of accruals because you depleted somewhat your provision last year because of OFAC, or whether we should see it as a pure one off. Finally, the AFS results, just curious how big they are. Is it 125 bps in your capital? What speed of pull to par should we model in our forecast? Thank you

Jerome Grivet

As far as the liability management transaction we are contemplating is concerned, we have not made up our mind for the time being, but it's going to be probably much smaller than the one we did on the first quarter on the scope of the Group globally. So I leave you with your own calculation or estimation on the level that would be relevant considering the scope of LCL.

As far as the €50 million legal provision is concerned, you might remember that by the end of last year we already booked an additional legal and litigation general provision within the Group. I think it was around €150 million. Some of you mentioned it was possibly in connection with the one-off gain that we had, but we didn't state anything from this point of view. I think this is a prudent approach that we must have in the long run to regularly, when it's possible, when it makes sense, to book some litigation provisions, because we know that we are in a world, we are in an environment where banks are regularly searched by authorities on legal issues. So there is nothing specific, but indeed I confirm that we will have and we have already since last year a policy that consists in regularly putting aside some money for this potential litigation.

Last point, as the AFS reserve is concerned, it's indeed a little bit above 100 bps globally, something like that. I think that we have in our capital planning a time decay of this AFS reserve which is something between 15 bps and 20 bps a year, if I remember correctly. It's included of course in our capital planning.

Operator

We will now take the next question Maxence Le Gouvello from Jefferies. Your line is open, please go ahead.

Maxence Le Gouvello

Maxence Le Gouvello, Jefferies. Good morning, Jerome.

Jerome Grivet

I recognize you, Maxence Le Gouvello.

Maxence Le Gouvello

Thank you. Very kind. I have two questions. The first one is regarding the level of NPLs of the Group and the provisioning. We have seen over the last two quarters some erosion on that part. I would like to have an idea of what will be the right level for you especially in terms of coverage ratio. The second element is to come back to Alex's question regarding Credit Agricole consumer finance. You spoke about the consumer finance optimization in terms of RWA density, but the largest work that you need to achieve is on the factoring. Can you give us update on that side, please?

Jerome Grivet

To start with your second question, of course we are working also on the optimization of the leasing and factoring RWA consumption. So we are considering as we already do it for the consumer credit division, we are considering as far as the operation with the customers of the regional banks are concerned to develop more or less the same kind of model in which the leasing and factoring division of CAsa works directly on the balance sheet of the regional banks in order to provide them the services they need without consuming RWAs in the scope of Credit Agricole S.A.

Among the technical elements that we consider using in doing this, we also consider purchasing insurance policies to cover some of the factoring amounts. So, you're right. This asset light policy is globally the same for the SFS division and not only for the consumer credit activities. Your first question was excuse me?

Maxence Le Gouvello

The first question is regarding.

Jerome Grivet

On the NPL. Again, what I say is that we are not managing and we are not monitoring the coverage ratio of the NPL by our provision. There are several movements, and those movements are in addition to that linked to several different activities the CIB activity, the consumer credit activity and so on and so forth. So, we calculate the level of NPL, because there is a specific definition of what an NPL is.

Maxence Le Gouvello

Jerome, my question is not on NPL; it is more about the coverage ratio.

Jerome Grivet

Yes, and I was coming to the coverage ratio. What I was meaning is that the level of NPL can have some, I would say, autonomous evolutions on one quarter which are linked simply to the application of the definition of what an NPL is. But on the other hand, when we take decisions on provisioning, we have two categories of provisioning, we have specific and individual provisioning which apply to specific and individual loans, specific and individual exposure and then specifically within CIB, we have to acknowledge all the characteristics of the loan in order to define the right level of provisioning. For example, we have to take into account all the guarantees that we have. Again, for some technical reasons, we are not in a position to publish a consolidated coverage ratio, which takes into account the guarantees that we have, because it doesn't work the same way in CACIB, within CACF, within LCL and so on and so forth. So when we make a specific provision on a specific file, we take into account precisely all the guarantees. This can lead to a level of coverage ratio on a specific NPL file which might be above or below, and sometimes much below, the average level. And then we have the collective provision specifically within the consumer credit activities, but also within the CIB activities. We have sectorial provisions. We have collective provisions. They work according to certain parameters. So all in all, we have an evolution that can be disconnected on a certain quarter between the level of NPL and the level of provision. But what I can tell you is that first, we don't see any real deterioration on the credit quality of our different portfolios. Second, we have not modified, and indeed we have not deteriorated, the prudent approach that we have on provisioning on the different categories of loans.

Maxence Le Gouvello

Many thanks.

Operator

We will now take our next question from Delphine Lee from JP Morgan. Your line is open, please go ahead.

Delphine Lee

Yes. Good morning, Jerome. I've got two questions. The first one is just to come back on -- to follow up on dividends. Do I understand this correctly that basically you intend to maybe set an absolute level for the next two years, let's say for example, 2 billion as another basically policy on top of the 50%? Or am I getting this wrong?

Second question is on French retail. Looking at the chart that you have on the early redemptions and renegotiations, is that -- in the second half it looks like you're struggling. Do we get some improvement in the trends in the second half? Should we expect something more down, let's say, 1% to 2% as opposed to 8%?

Jerome Grivet

First on dividends. Again, I think I've said what I can say at this stage of the year, I mean after the first two quarters of this year. We are going to reassess and to precise our policy as time goes by and within the presentation of the third and fourth quarter of the year more detail of our precise intentions. But again, we have a policy and we have a preoccupation which is to provide as much clarity and stability to the shareholders.

Globally CAsa is an entity with a diversified business model which aims at providing an attractive and as stable as possible level of profitability. Our intention is to take advantage of this stable and diversified vehicle to provide the shareholders stable and attractive levels of dividend. But again, we will have occasion to discuss this issue before the end of this year.

As far as LCL is concerned, what you can see on the chart that we've put for the first time with the first-quarter results and that we've updated this quarter on the renegotiation and early redemption, what you can see is that if you have a certain decrease in the level of early renegotiation of redemption then it is followed a few quarters later on by stabilization of the net interest margin.

It's only logical, because early redemption and renegotiation is pushing down in an accelerated manner the yield of our asset book, of the asset side of the balance sheet. At the same time, it is due largely to some French specificities, the cost of our resources, the customer resources, is not decreasing as fast because we have the Livret A, because we have the home loan saving plans and so on and so forth.

This is why when we have a certain stability of the level at a low level of the early repayment and renegotiation, then we can recoup a certain stability in the net banking income and in the net interest margin.

What I was mentioning is that what we've seen in the last period of the second quarter and what is continuing a little bit in the third quarter is that even if it's a level which is much lower than in 2015, we have a little pickup in the level of renegotiation. So the liability management transaction I was mentioning is here in order to help LCL to accommodate this potential pickup in renegotiation and early redemption.

Delphine Lee

Thank you very much. Very clear.

Jerome Grivet

Thank you.

Operator

We will now take our next question from JP Lambert, from KBW. Please go ahead.

Jean-Pierre Lambert

Good morning. Three questions followed by a number question. The first question is, the stress test impact was given at the Credit Agricole Group, 319 basis points. I was wondering how much impact in your estimate at CAsa level of the same exercise? Are we talking about 400 or more basis points? Second question is related to the loan loss charges for consumer finance in Cariparma. What is your view on the medium-term cost of risk we see that keeps coming down? I was wondering what is your view on the normalized level. Third question, to come back on the liability management, at LCL we have a vases communicant situation whereby, maybe benefit at LCL but it has an impact on the corporate center. The final point is just a number. What is the amount of corporate current accounts in slide 32 in the consumer-related funds? Thank you.

Jerome Grivet

I didn't get your last question, to be frank.

Jean-Pierre Lambert

Yes. If you look at slide 32, you provide an amount of customer funding in the liquidity slide. I was wondering how much of that amount is related to corporate current accounts.

Jerome Grivet

That's a good question. I don't have the information right out of my mind, so we'll have to come back to you with the precise information. I don't have it in mind as far as now. On the stress test, I think it has been made very clear, unfortunately with a little delay but at the end of the day it has been made clear that this was the Group that was going to be tested. So we are not testing specifically the perimeter of Credit Agricole S.A. So the hit of 390 bps, you are talking about the fully loaded ratio. It's closer to 300 bps if we are talking about the phased in ratio. Concerns only the Group, and we didn't calculate or we didn't try to get what would have been the level of impact on CAsa specifically. We think it's not a relevant perimeter again to assess the solvency of the Group.

But I take advantage of your question just to again remind you that within CAsa, pro forma the Eureka transaction, I mean by tonight actually, we will have a level of CT1 ratio which is going to be at 11.9%. So anyway it's a very comfortable situation, especially if you consider that we were talking about the capacity of the Group to cover not only its stress level but the systemic buffer, and at CAsa level of course there is no systemic buffer to cover anyway. In terms of cost of risk guidance on Cariparma and on CACF, I think we are probably very close to the bottom, at least if we take into consideration I would say some historical perspectives. Probably we have also to take into account the fact that this environment of very low level of interest rates has many disadvantages. We've been talking about them. But it has probably one advantage, which is to improve the creditworthiness of our customers globally.

So probably, we are in a situation where it's not abnormal to be and to stand at sub average levels of cost of risk. So in terms of target cost of risk both for CACF and for Cariparma, again we don't foresee any deterioration of the credit quality. So even though we don't target much lower levels, it's not impossible that it continues to decrease a little bit. But we are not counting on this decrease in order to improve the profitability of those businesses. Last point on the LCL and the liability management operation I was mentioning, what we intend to do is something we would do, I would say, with the outside. So it's not a vases communicants mechanism between the corporate center and LCL. As we said, one of our intentions in the medium-term plan is to have a lower level of costs of the corporate center. We are not intending to increase again this level of cost in order to help LCL. This is not exactly the way we conceive things.

Jean-Pierre Lambert

Great. Thank you very much.

Operator

We will take our next question from Stefan Stalmann from Autonomous Research. Please go ahead.

Stefan Stalmann

Good morning, Jerome. I have just two small questions left. The first one is if you could maybe disclose to us the impaired loan ratio and the coverage ratio on Agos. The second question is, do you think it's now fair to assume in LCL that net interest income has bottomed out in the second quarter and that it's not going to drop further quarter-on-quarter? Or would that be premature? Thank you.

Jerome Grivet

I asked my colleagues around me to provide me with the precise information you are requesting on Agos, because I don't have that on top of my mind. On LCL, what we think is that if the situation of early redemption and renegotiation normalizes and the levels that we have reached in the first and second quarter all in all are more or less normalized levels then probably your assumption is not far from being right. If the pickup that we've seen in the last part of the second quarter is confirmed in the third quarter then probably this stabilization is going to be a little bit bumpy before it fully stabilizes. But there is a direct link again between the level of early renegotiation and redemption and the level of net interest margin in the following quarters.

Stefan Stalmann

Thank you very much.

Jerome Grivet

At Agos you were requesting the cost of risk. It's 45 bps.

Operator

We will now take our next question from Pierre Chedeville from CMCIC. Please go ahead.

Pierre Chedeville

Good morning, Jerome. Two questions. First question is regarding the €1.2 billion in the corporate center after the Eureka project in Q3. I would have liked to have a breakdown. Will we have this €1.2 billion booked in the line capital gain, or we will have, I would say, a different line impacted by this exceptional product, because profit, because in my mind I thought that the capital gain, the pure capital gain was around €850 million. So I'm not very clear on that. The second question is related to the provision on LCL on the restructuring of the network. You said that you remind us that the plan targets 200, 250 branches closing, but this provision of €40 million, how many branches does it concern so far? Thank you very much.

Jerome Grivet

As far as the total net one off profit is concerned, you're right; it's going to be booked probably on different lines of the P&L of CAsa. But the biggest part is going to be booked on capital gain line. I think there are also some provisions that are going to be recouped after the conclusion of the transaction, but again, I think we must come back to you with more details and precise information, because it's a technical matter and we don't have right with us all the answers. But maybe the fact that you have in mind a different amount than the one we are effectively going to book is linked to the fact that we have been talking since the beginning about only the capital gain that was going to be realized linked in connection with the initial sales price. In addition to the initial sale price, which is a little bit above €80 billion, we have and we always said that we were going to have, a price adjustment, because there was a price adjustment mechanism. This, the precise calculation of the price adjustment mechanism leads to an amount of a little bit above €500 million. So probably the 800 million you have in mind is linked to the fact that we were only talking about the effect of the initial sale price and we haven't disclosed so far any assumption on the price adjustment mechanism.

On the restructuring provision that we have booked within LCL, it covers the closing of the 200 and something branches that we intend to close and actually, because we are talking it's a convenient way to put it, we are talking about closing branches, but actually what we are doing is that we are regrouping the branches within urban areas, and we are targeting not to lose any single customer while doing so.

So this is of course technically we are closing branches, but from an efficiency point of view we are improving the efficiency of the network by having a lower number of bigger branches, especially in urban areas, in order to improve the quality of the service and the advisers that are provided to customers in order to boost revenues. Again, we don't intend to lose any single customer while doing so.

Pierre Chedeville

Thank you, Jerome. Just to be perfectly clear, so you mean that we will not have any more provision regarding this subject during the course of the plan?

Jerome Grivet

That's exact -- we are -- we have been booking all what it was possible to book. Actually some accounting rules make it impossible to book one-off certain costs. So we are going to have running costs of the closing of branches -- I don't have the amount in mind, but we are going to disclose it quarter after quarter because as far as the remaining amortization are concerned, we cannot offset them one-off with a specific provision. We only can accelerate the amortization up to the date, the forecast date of closing of the branch. So we'll have an additional but very low effect net quarter up to the effective closing of the branches. This is due to specific accounting reasons, but we will disclose regularly the impact on each quarter for LCL.

Pierre Chedeville

Okay, thank you. Last question, if I may. Do you have calculated a return on tangible equity excluding one-off or exceptional operation, just to know more or less where we are compared with your peers?

Jerome Grivet

Well, it depends to what peer you want to compare us, because if I read correctly what our peers published, some are publishing a pure stated level of profitability and some are publishing an underlying level of profitability.

With rules as IFRIC21, it's a little bit difficult to publish a level of return on only one single quarter or even on a semester. Of course, you can do your own calculation and you can try to restate all that. But I would say that depending on the way you calculate things, our return on tangible equity would be probably between 8% and 11.5% on an annualized basis on this quarter and semester.

Pierre Chedeville

Okay, perfect for me. Thank you.

Operator

We will now take our next question from Geoff Dawes from Societe Generale, your line is open, please go ahead.

Geoff Dawes

Hi, everyone. Good morning. It's Geoff here from Soc Gen. Two questions from me, both fairly quick, hopefully, as we're onto the end of the call. First of all on Amundi. Obviously you've guided in the past that they could do acquisitions and CAsa could decline to participate in any of those rights issues if they were required. With the capital level now being quite substantially higher than I think you expected at this point in time, would you change in that commitment? Would you consider participating and retaining your existing stake in Amundi if there were any acquisitions or any rights issues required? Second question is on Italy. Obviously, a lot of turbulence in that market at the moment. Have you seen any early indications of volumes slowing or loan losses going up because of that? Secondly, would you consider participating in any kind of eventual solution that may be required there in capital terms? Those are the two questions. Thank you.

Jerome Grivet

On Amundi, what we always said is that the level of capital that we have within Amundi offered us the possibility of deciding whether to follow or not to follow any specific rights issues that will be made in connection with an M&A transaction. So we didn't say that we were unable to follow any transaction of this kind. So we are in the same situation. For the time being, we are not studying any specific transaction within the scope of Amundi. We are going to complete, Amundi is going to complete before year end the transaction that was announced a few weeks ago, and this is going to be made in cash. But this is the only specific M&A transaction that is within the scope of Amundi as of today. If something were to happen in this perimeter in the coming months or quarters, we would of course assess the way such a transaction would be paid, in cash or on paper. If it were to be paid at least partially on paper, we would assess the capacity of CAsa to participate up to its stake or below its stake to this, to the financing of this transaction. So nothing is decided, but again, as we stated when we published the medium-term plan, the level of capital that we have is making us much more agile from many point of views, and this is one of the many point of views on which we are agile. As far as.

Geoff Dawes

That's very clear. Sorry, just to clarify a little bit, does that mean that your intention would be to participate if it's affordable?

Jerome Grivet

We would assess the situation if and when such a situation occurs.

Geoff Dawes

Great. Clear, thank you.

Jerome Grivet

As far as Italy is concerned, I think we've indicated that on the slide on Cariparma, that at Cariparma, what we see is indeed a decrease in the net inflows of defaulted loans. So we don't see again any deterioration of the credit quality on the Italian market, at least from the point of view of Cariparma.

So really, of course the loans outstanding is not growing as rapidly in Italy as it is in France, plus 1.1% for Cariparma on the whole year as compared to closer to 3% to 5% within the regional banks and LCL. But we don't [Technical Difficulty] any deterioration and any, I would say, contingent from the situation of certain specific Italian banks on the way we are banking in Italy.

For the rest of your question, we are of course aware of what's going on in Italy in terms of potential restructuration of the banking sector. Our intention is not really to participate in this movement. Again, I want to remind you that in Italy we don't have only Cariparma and as it is specified on slide seventeen, the net profit of the Group in Italy is far above the profit that is coming from Cariparma. On this quarter globally, the Group, the Credit Agricole Group, made a profit of nearly 120 billion in Italy when the contribution of Cariparma was 43 million. On the whole semester, the net profit of the Group was close to €250 million. So Italy is a very important market in which we have many different activities, and not only retail banking activities.

Geoff Dawes

That's very clear. Thank you very much for those answers.

Operator

We will now take our next question from Jacques-Henri from Kepler Cheuvreux. Please go ahead.

Jacques-Henri Gaulard

Yes, good morning, Jerome. I'll try to make it quick. In light of the panic that there is out there among investors about the level of interest rates being lower forever, going down, and actually we're all going to converge to zero and it's a complete disaster, have you revised your interest rates macro forecast, I'm not talking about your ability to obviously cope with your revenue growth at LCL, but more your macro revenues forecast as far as interest rates are concerned, or you're still confident about the ones you disclosed during the plan? Linked to that, have you used TLTRO II to one extent or another? That's the first question.

The second question is the ING conference call has just finished, and they basically said that the impact of Basel IV seems to have eased quite significantly. Is it something that you can confirm in terms of what you heard from the regulator at that point? Lastly, Jerome, unfortunately I have to ask the D question again probably a bit more directly. I don't know how you will answer to that, which is, is it reasonable to model 0.60 as last year, or is it not reasonable? Thank you.

Jerome Grivet

Well, Jacques-Henri, I will leave you with your own answer on the last question. It's not a surprise, I guess, for you. As far as our forecast in terms of interest rate is concerned, we are not modifying every other day our forecast. So we have regularly a complete reforecast exercise. This is going to be performed this summer in order to have a clean sheet, I would say, to build our 2017 budget. So we will reforecast the interest rate scenario, and we will doing this we will try to assess the precise intentions of the central bank. Because, to be frank the present situation is a bit puzzling. We have a nominal growth in the Eurozone which is above 2%. It's not very dynamic, but still it's above 2% if we add the growth in real term and the underlying inflation.

The level of interest rates, long-term interest rates, is completely de-correlated from this nominal growth. And the only explanation is linked to the quantitative easing policy that is developed by the ECB. Officially, this quantitative easing policy is ending March 2017. And obviously, if effectively the ECB stops buying government bonds and even corporate bonds by tens of billions a month in March next year, this is going to have an effect on long term interest rates. So, we don't know what the ECB is going to do, but we have to take into consideration all the official announcements and not only, this very dull momentum that is around all the places since June 23rd saying interest rates are low and they are going to get lower, and it's going to last forever. Maybe one last point. Even in low interest rate environments, when we set correctly the parameters of our operations, we must be able to have a profitable activity. When interest rates were at 10%, you could make money by lending at 11% and refinancing your loans at 10%. When interest rates are much lower, we have to make it possible to find a room between the customer interest rates that we have on loans and the cost of the resources that we used to refund. Of course, we also have to develop all the noninterest revenues and in the commission and fees. So, we have in this new environment whatever it's going to be in the future to find a way in order to develop a profitable business model on the customer bases and on the franchise that we have.

TLTRO II, of course, like every bank, we are tapping the TLTRO II and we can say that we increase a little bit our the amount that we've taken to the TLTRO II as compared to what we've taken before to the TLTRO I. And Basel IV, I don't know who said that, that the ING confirms. What we see is that papers coming from the Basel committee are absolutely not changing direction. So, we see papers which are absolutely, I would say surrealistic. So maybe the thing you were mentioning is more linked to the fact that at a certain point of, I would say, absurdity the possible output becomes more and more a dropping of the subject. So, this is maybe what you had in mind when you were talking about an easing of Basel IV, because.

Jacques Henri Gaulard

It was ING. It was at the conference of ING, their results, their Q2 results, that ended a little while ago.

Jerome Grivet

Well, we don't give detail on the simulation, but what we can see is, all the papers coming from the Basel committee, again are absolutely not realistic, not adapted to the European banking sector.

Jacques Henri Gaulard

Okay. Thank you, Jerome.

Jerome Grivet

Thank you.

Operator

We will now take our next question from Robin Down from HSBC. Your line is open. Please go ahead.

Robin Down

Hi, it's really more a couple of requests than a question. The first is a small one, which is the chart you show for LCL showing the early repayments and re-negotiations on the mortgage book, it would be really useful if you could show that in future for Cariparma as well.

And the second is coming back to the dreaded dividend and capital, you're at pro forma 11.9, that's a 240 basis point management buffer in effect over your SREP number. So it's really just more a request, because we don't want to have a Q3 conference call where 90% of it is on the same subject again about what you're going to do with the capital gains for dividend purposes and cap levels.

So if there's any chance that at Q3 we could get a bit more clarity as to whether the VISA Europe gain and the capital gain on Eureka will be accounted for in the dividend payout. Also, if you could give us some form of cap on the core Tier 1 ratio, I think it would be quite useful at that stage, because if you're going to run with management buffers of 250, 300, 350 basis points, it has quite a big impact on the returns going forwards. Obviously it does then impact on the valuation for the business. So really just two requests really, rather than questions.

Jerome Grivet

Okay. We are taking your point on the Cariparma. I don't know what we are going to do, but we're taking your point.

On the dividend policy and the capital situation, as I said, as the year is going to progress, we are going to be in a much more comfortable situation to address these dividend issues. So probably, when we are going to produce the Q3 results, we would have a more clear situation and it's going to be even clearer with the Q4 results.

More seriously, of course, what we said on the capital situation when we presented the medium-term plan is that we had a target which was going to remain a long-term target of 11%. We wanted to be above but as close as possible to 11% in terms of CET1 ratio. We also showed that our medium-term plan was, I would say, mechanically leading to a margin of maneuver of an additional 100 bps above this target of 11%. So again, this is a margin of maneuver.

To answer your question, we don't intend, at no point in time, to extend this margin of maneuver. But again, we have also to integrate all elements that can happen. I was mentioning a bit earlier the fact that in the course of the second half of the year, we are going to close the Amundi transaction on Kleinwort Benson. This is going to cost a little bit in terms of CET1 ratio for CAsa. So this is going to consume a little bit of our margin of maneuver.

Robin Down

But then equally the Pillar 2 buffer is about to be split into two, so your MDA is going to get lower still?

Jerome Grivet

Yes. We have -- you're right, we have also to wait for the final output of the new SREP process, because the ECB and the EBA had given some guidance on the way we are going to perform this new exercise each year. We understand that it's going to be a little bit different from the 2015 SREP exercise with a division of the SREP add-on within two different categories, a requirement in the guidance. But we don't have the precise figures for the time being. It was , discussions with the ECB hadn't started. They're going to start in September and the output is going to be known probably in November. So this is going also to be an element we're going to take into account in the management of our [indiscernible] planning.

Robin Down

Okay. Still, any further clarification at Q3 will be useful, because otherwise we end up with an hour…

Jerome Grivet

Point taken. Point taken.

Robin Down

..on capital. Okay. Thank you.

Jerome Grivet

Thank you.

Operator

We will now take our next question from Nick Davey, from Redburn. Your line is open, please go ahead.

Nick Davey

Yes, good morning, everyone. A couple of follow up questions, please. The first one, just picking up on that discussion around the Pillar 2 buffer and it's being split into requirements and guidance. My understanding was that quite a core pillar of that discussion was around the results of your EBA stress test. So I just come back to this question which has already been asked, which is I realize the published results are done at a Group level, but given that we know you have a SREP requirement at CAsa level as well, surely that same scenario will be applied for CAsa and the result of that will be quite important. So is there any way you could just talk to us a little bit more about that process? Are you expecting to be able to fix a SREP without a stress test result? Or also, is it not fair to conclude, as one of the questions has already said, that actually the impact in basis points to CAsa would be 400 basis points plus?

Then second question, sorry, just coming back to this discussion around the capital buffer that you're thinking about going forward, I just want to come back to this AFS point, and you've mentioned it a few times being well over 100 basis points. Some of your peers filtered that out as CET1. Do you not want to strike quite a kind of conservative stance going forward, as far as the cyclicality of your capital ratio; you're talking about the end of QE and hopefully steepening yield curves. I just wondered if there's any temptation actually just to filter out all of that AFS unrealized gains. In that light, maybe your capital ratio's just not quite as strong as it might appear at the headline level. Thanks.

Jerome Grivet

Well, to come back on your last point, I think, to put it very clearly, we are exactly applying the rules. The filtering of capital gains is something that is possible in the phase in period, but it's not possible in the, once we have the fully loaded capital ratio, precisely because the capital ratio has to take into account not only potential unrealized capital gains but also potential unrealized capital losses. So this is why actually in a fully loaded situation, you don't take into account, you don't filter those elements; they are part of the capital. So we have applied fully the rules, and we just disclose the effect of these capital gains or capital losses reserves in order to provide full clarity. Again, we fully integrate in our capital planning process the time decay on all these portfolios.

As far as the SREP is processed, the SREP is concerned, for us, of course, we will have, we think we will have a SREP level that is going to be assigned to CAsa and not only to the Group. We don't imagine that SREP would be applied only to entities that were submitted to the stress test. As the ECB and the EBA stated it, the results of the stress test are going to be taken into consideration in the SREP process. Of course, for the banks that were submitted to the stress test, I imagine that for entities or for perimeters that were not directly submitted to a stress test, which is the case for Credit Agricole SA, we are going to have a process as was last year, including a review of our risks including a review of our business model, including a review of our governance, including a review of our capital and liquidity situation, in order to assess the relevant level of SREP add-on divided into SREP requirement and SREP guidance assigned to the level, to the perimeter of Credit Agricole SA.

But again, this exercise is not going to lead to any kind of surprise for us, considering the very comfortable level of solvency of Credit Agricole SA, and considering the even more comfortable level of solvency of the Group in which we are embedded, I would say, considering all the financial solvency mechanisms that exist inside the perimeter of the Group. So this is not an issue. The only thing for us, for this SREP process, is to understand how the ECB and the EBA are going to adapt from the SREP 2015, the SREP 2016, how it's going to work, how the different buffers are going to be calibrated. But frankly, this exercise is not a puzzle by any means for us.

Nick Davey

Very clear, thank you.

Operator

We will take our next question from Kiri from Barclays Bank. Please go ahead.

Kiri Vijayarajah

Yes, just a follow-up on the asset light strategy in specialized finance. I appreciate it explains part of the revenue weakness there. But how come we don't see it really in the RWA numbers to specialized finance? You see that going up more than 2 billion or 4% in a single quarter, so really just some explanation around some of the balance sheet and RWA moves in specialized finance in relation to that kind of revenue performance. Thank you.

Jerome Grivet

In the specialized financial services, this is the main area where we had a methodological modification of some Basel parameters that led to an increase of I think precisely 1.6 billion RWA. So it's a one-off effect without any modification of the portfolio neither in quality, nor in size. It's just a modification that was integrated in our model on the precise definition of the default loan. So this is the only explanation. It's a pure technical explanation.

Kiri Vijayarajah

Okay. Yes, I know, that's very clear. Thank you.

Jerome Grivet

In addition to that this is something we had taken into account in the capital planning of the medium-term plan that we published on March 9. We just couldn't say at this time when it was going to take place. But it was integrated, this technical modification, in the capital planning that we published.

Kiri Vijayarajah

Okay, thank you…

Operator

We will now take our next question from Max Le Gouvello from Jefferies. Your line is open. Please go ahead.

Max Le Gouvello

Yes, Jerome, just one last question on my side. Can you remind us why Amundi was not able to close a deal with Pioneer in 2011?

Jerome Grivet

To be frank, I was not in my present position at this time and I don't have any precise remembrance of this situation back in 2011, but we are now in 2016, we are in a different situation, Amundi is in a different situation and we are talking about what's going on now. So no, I think no precise interest on what was going on in 2011.

Max Le Gouvello

Thank you.

Operator

We will now take our final question from JP Lambert from KBW. Please go ahead.

Jean Pierre Lambert

Yes, it's more a suggestion than a question. The solution to the D question is easy. It's a special dividend, and a regular dividend, and I think you will solve the equation.

Jerome Grivet

Thank you for your suggestion, Jean Pierre.

Jean Pierre Lambert

No problem.

Jerome Grivet

Well, I understand this was the last question, so again, thank you all for attending this call, and I wish you nice holidays to every one of you. Bye-bye.

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