At 31 December 2009, the Group’s scope of consolidation encompassed 564 subsidiaries and equity investments. Notes 12 and 2.1 to the financial statements present the Group’s scope of consolidation and changes to the scope during the year.
During 2009, the Crédit Agricole S.A. Group’s scope of consolidation changed as a result of transactions carried out in 2009, and due to transactions that were carried out in 2008 but that produced an impact on the income statement only in 2009. Lastly, certain changes in the scope of consolidation by comparison with 31 December 2008 were also due to transactions carried out during 2008.
In a climate of persistent economic crisis, the Group did not make any major acquisitions and carried out a number of disposals. The Group’s scope of consolidation was materially affected by the following transactions realised in 2009:
Increase in equity investment in CACEIS
On 30 June 2009, Crédit Agricole S.A. completed the acquisition of 35% of the share capital and voting rights of CACEIS for €595 million. Following this transaction, Crédit Agricole S.A. owns 85% of CACEIS, compared with 50% previously, and holds exclusive control over the entity. Natixis retains a 15% stake in CACEIS. CACEIS, which was proportionately consolidated in Crédit Agricole S.A.’s accounts in the first half of 2009, was fully consolidated as from 30 June 2009. As a result, as from the second half of the year, Crédit Agricole S.A.’s income statement fully reflects CACEIS’ income statement.
Disposal of Crédit du Sénégal, Union Gabonaise de Banque, Société Ivoirienne de Banque and Crédit du Congo
Under the agreement executed on 25 November 2008 with Attijariwafa b ank concerning the acquisition of Crédit Agricole S.A.’s investments in its retail banks in Sub-Saharan Africa, during the third and fourth quarters of 2009, Crédit Agricole S.A. completed the disposals of its investments in Crédit du Congo, Union Gabonaise de Banque, Crédit du Sénégal
businesses in Europe with a refocusing o n the Mediterranean Basin. The disposal generated a €145 million gain, which is included in “After-tax net income from discontinued or held-for- sale operations”.
Furthermore, Crédit Agricole S.A. acquired an additional 24% interest in Crédit du Maroc, thereby increasing its interest to 77%. This investment remains fully consolidated.
Combination of Crédit Agricole S.A.’s and Société Générale’s asset management businesses
On 31 December 2009, Crédit Agricole S.A. and Société Générale completed the combination of their asset management businesses. As of that date, CAAM Group, the parent company of the group, changed its name to Amundi Group. This new business line comprises 100% of CAAM Group’s operations, to which Société Générale has transferred its European and Asian asset management businesses. Following this transaction, Amundi Group is 73.6% owned by Crédit Agricole S.A. and 25% owned by Société Générale. Amundi Group was fully consolidated as of 31 December 2009, with no impact on the income statement.
Investment in Intesa Sanpaolo equity-accounted as from 30 June 2009
Following the execution of a shareholders’ agreement with Assicurazioni Generali designed to maximise the value of the two companies’ respective investments in the Italian bank, Crédit Agricole S.A.’s stake in Intesa Sanpaolo, which was previously recognised in assets available for sale, was equity-accounted for as of 30 June 2009 for the first time. As of that date, the effect of this reclassification was to reduce the value of the investment to its historical cost and to increase recyclable reserves by €1,462 million from their amount at 31 December 2008.
In the income statement, equity-accounting of the investment since 30 June 2009 produced the following impacts in 2009: €359 million impairment loss;
bad will of €110 million; €37 million share of net income.
That is, a total negative impact of €212 million in 2009.
The following transactions completed in 2008 produced an impact on the income statement in 2009:
First-time consolidation of the new Agos-Ducato entity on the income statement
At the end of 2008, Agos, which at the time was wholly-owned following Crédit Agricole S.A.’s acquisition of the minority interest previously held by Intesa, was merged with Ducato, a subsidiary of Banco Popolare, thereby creating the leader in consumer
At 31 December 2008, Ducato was consolidated in the balance sheet; however, it was consolidated on the income statement for the first time on 1 January 2009.
At 31 December 2009, Ducato merged with Agos: this transaction had no impact on income.
First-time consolidation of Credium Slovakia (formerly OTP L easing)
OTP Leasing, Slovakia’s fifth largest car finance company, was acquired in November 2008 and consolidated in income for the first time in the first quarter of 2009. OTP Leasing is attached to Credium (Czech Republic).
Other transactions completed in 2008 produced changes in scope at 31 December 2008. These mainly include:
the full consolidation (at 100%) of Caisse Régionale de Corse, following the dissolution of that Regional Bank’s Local Banks, by a decision of Crédit Agricole S.A. adopted on 22 May 2008; the inclusion of the 22% stake in the Spanish bank Bankinter,
which was equity-accounted for the first time in the fourth
quarter of 2008. In 2009, the ownership interest was increased to 23.42%, with no material impact on net income for the year; s ubscription to the capital increase of CACEIS, resulting from the
transfer by Natixis of its securities and investor services, fund administration and issuer services businesses to CACEIS for the purpose of retaining the same ownership percentage;
in consumer finance, the acquisition of 50% of Forso Nordic AB, which is active in the Scandinavian countries in car finance for the Ford Group brands. The entity has been proportionately consolidated since the third quarter of 2008.
Overall, the changes in the scope of consolidation produced a marginal impact on the Group’s main financial aggregates when compared to other changes. They accounted for approximately 4.1% of net banking income, which rose by 12.4% overall, and around 2.4% of expenses which contracted by 3.6%: The impact on gross operating income was of 10.6% out of an overall change of 73.4%.
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ECONOMIC AND FINANCIAL ENVIRONMENT
During the first part of 2009, governments worked relentlessly to extract the world economy from its worst recession in the post-war period. The generalised mistrust that followed the failure of Lehman Brothers in September 2008 paralysed economic agents, leading to a collapse in global demand and bringing international trade to a halt. The downturn was most severe in the first quarter of 2009, with GDP contractions of 5.3% in France (on an annualised basis over the quarter), 6.4% in the USA, and as much as 13.4% in Germany.
Colossal resources were deployed to stabilise the financial markets and dampen the shock on economic activity. The central banks aggressively cut key rates which reached all-time lows, ranging from 0 to 0.25% for Fed Funds in December 2008, of 0.5% in the UK and of 1% in Europe at the beginning of 2009. After exhausting their arsenal of conventional weapons, they turned to other, non-conventional means known as “quantitative easing”, to continue to support their economies by actively managing the size and structure of their national account balances. The ECB focused its efforts on (re)financing banks though fixed-rate auctions in unlimited amounts and with maturities of up to 12 months, which made sense for the European economies where the level of intermediation is still high. The Fed and the Bank of England intervened more directly in the markets by providing liquidity and financing to sectors that were damaged by the crisis,
purchase government securities in an effort to directly affect the very foundation of market rates.
The governments did not spare the resources needed to shore up global demand and the financial sector as a whole. The banks received government support in the form of capital injections when necessary and through various guarantee mechanisms, in addition to measures to provide liquidity. Ambitious fiscal policy programmes were also implemented, with the priority placed on standard demand- stimulus measures, such as tax cuts and tax credits, increased government spending, and incentives to scrap old cars.
This government “hyper-activity” produced a positive psychological effect on economic agents and broke the vicious economic and financial cycle by restoring confidence. After fearing the worst at the beginning of the year, the markets began to see the light at the end of the tunnel, as evidenced by the sharp rebound for all asset classes as from the month of March. Confidence surveys also began to reflect a reversal in the trend and to suggest that the recession was easing. This was confirmed by growth figures for the second quarter, when GDP contracted at annualised rates of just 0.7% in the US and 0.5% in the euro zone. While some countries, such as France and Germany, saw growth return to positive territory in the second quarter 2009, they were
While fiscal and monetary stimulus measures shored up the foundations of growth, the concurrent and unrelenting rise in unemployment, credit shortage and overcapacity inherited from the crisis continued to hinder the recovery process in nearly all countries.
Against this backdrop of a timid upturn, long term rates gradually adjusted upwards and closed the year just below the 4% mark on both sides of the Atlantic. As investors’ risk appetite was rekindled, the US dollar gradually lost some of its appeal as a safe haven. The euro rose to a high of 1.50 against the dollar at the beginning of December before easing to around 1.435 at year-end on the back of technical trading.
In the banking industry, the financial crisis coupled with deteriorating economic conditions weakened the institutions’ financial condition. The CréditAgricole S.A. Group kept a close watch on crisis- induced risks throughout the organisation. Crédit Agricole S.A.’s Board of Directors and the Board Committees (mainly the Audit and Risks Committee and Strategic Committee) worked actively to closely monitor the Group’s risk exposure.
In 2009, they continued to set up committees designed to ensure more responsive decision-making, including a Weekly Committee
chaired by the Chief Executive Officer of Crédit Agricole S.A. and the Group Risk Monitoring Committee, which is responsible for foreseeing the emergence of all kinds of risks.
In 2009, the executive body (via the Group Risk Management Committee), the Audit Committee and the Board of Directors were kept closely informed of risk strategies and the extent of the Group’s credit and financial risk exposures. The Group Risk Management Committee re-examined the strategies applied by the Group’s business lines and adjusted intervention limits as needed. Furthermore, a Group-wide approach was developed for sensitive business sectors. In the area of operational risk, periodic reports on the Group’s exposure to fraud-related risks were submitted to the executive body via the Group Internal Control Committee. This heightened supervision and the risk management systems are described in the Chairman’s report to the Annual General Meeting, which is reproduced in full in Chapter 2 of this document.
The nature of risks to which the Group is exposed together with their extent and the systems that have been instituted to manage these risks are described in the Risk Factors section of the management report. A special sub-section is dedicated to the specific risks induced by the financial crisis.