BPCE - 2019 Universal Registration Document




Foreword 4.1

The financial data for the fiscal year ended December 31, 2019 and the comparative data for 2018 were prepared under IFRS as adopted by the European Union and applicable at that date, excluding some provisions of IAS 39 on hedge accounting. This management report discusses the results of Groupe BPCE and BPCE SA group, built around the central institution, BPCE,

which was established on July 31, 2009 following the merger of Groupe Banque Populaire and Groupe Caisse d’Epargne. BPCE SA group’s results are summarized because the operations and results of the two groups are closely related. The main differences in scope relative to Groupe BPCE concern the exclusion of the contributions of the Banques Populaires and the Caisses d’Epargne.

Significant events of 2019 4.2


Economic and financial environment

2019 ENVIRONMENT: GLOBAL INDUSTRIAL DOWNTURN, FRENCH RESILIENCE AND STRATEGIC U-TURN BY THE FED AND ECB In 2019, there was a sharper slowdown in the global economy, which grew 2.8% per year, vs. around 3.6% in 2018, after experiencing a peak in activity in 2017. Industry went into recession from Q4 2018, primarily in Europe and Asia, in the automotive sector but also in electronics. This downturn, fueled by US protectionist threats, exacerbated the contraction of global trade, to the particular detriment of the most integrated economies such as China and Germany. Finally, the accumulation of uncertainties, which intensified from the beginning of 2019, undermined the confidence of economic agents. These included geopolitical crises with Iran, the risk of escalating protectionism, inversion of the yield curve in August in the United States, emergence, finally postponed, of a hard Brexit on October 31, politico-budgetary vicissitudes on Italian public finances until the summer, etc. More specifically, the American economic exception came to an end, due to the attenuation of the effect of the previous fiscal stimulus. China continued its gradual slowdown, albeit against the backdrop of rising inflation, due to the swine fever pandemic. The euro zone suffered from the decline in German and Italian industrial production, to 1.2% per year, vs. 1.9% in 2018. Moreover, aside from the temporary geopolitical tensions, the price of Brent crude oil, whose annual average was $64.2 a barrel (Brent), was not a source of inflation due to global growth running out of steam. Despite the economic slowdown, we paradoxically saw a relative surge in stock market, bond and real estate assets, due primarily to the decline in nominal interest rates to much lower levels than in 2018. In particular, the CAC 40 rose by 26.4%, to 5,978.06 points on December 31, 2019, vs. 4,730.69 points a year earlier, its highest performance for 20 years. Fears of a prospective recession and escalating trade tensions prompted the Fed and ECB to radically alter their strategic course in light of consistently waning inflation expectations on both sides of the Atlantic. From July, the Fed carried out three successive 25 basis point cuts in its key rate. We also saw a spectacular liquidity crisis on September 16 and 17 in the US interbank repo

market. The ECB also significantly eased its monetary conditions in light of the industrial downturn in the euro zone and weak underlying inflation. On September 12, it decided on a further cut in the deposit rate for banks to -0.5% (-0.4% previously), the contested resumption of the monthly asset purchase program for €20 billion from November 1 and the relaunch of long-term loans to banks (TLTRO), not to mention the introduction of the tiering of the deposit rate, in order to reduce the cost for banks. This monetary easing movement therefore helped precipitate further declines in long yields. Accordingly, the 10-year OAT moved into negative territory from June 18, standing for the first time in its history at -0.44% on August 28. It amounted to 0.13% on average over the year, vs. 0.78% in 2018. Aside from the slight unforeseen contraction in economic activity in the fourth quarter (-0.3% per year), French growth remained resilient given the German downturn. This was due to the favorable impact of the Macron measures to boost household purchasing power and the fact that the economy is less dependent as regards the contraction in global trade. Admittedly, activity decelerated but returned to a rate close to its potential, around 1.3% per year. It was based firstly on still robust business investment, aided by supportive financing conditions and a one-off positive cash effect. In contrast, household consumption reacted with a traditional lag of around four quarters to the acceleration in purchasing power to more than 2.1%, as a result of the tax measures announced in December 2018 and April 2019, the decline in inflation (1.1% vs. 1.9% in 2018) and the improvement in employment. The “Yellow Vest” movement, and then to a lesser extent the strike related to pension reform from December 5, had a relatively moderate negative impact on the economy. In contrast to 2018, foreign trade was hurt by the slump in global demand. However, growth, which has been more job-rich since 2015, was strong enough to bring the unemployment rate down to an annual average of 8.2% vs. 8.7% in 2018.




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