BPCE - 2020 Universal Registration Document

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ACTIVITIES AND FINANCIAL INFORMATIONS 2020

FOREWORD

Foreword 4.1

The financial data for the fiscal year ended December 31, 2020 and the comparativedata for 2019 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 followingthe merger of Groupe Banque Populaire and Groupe Caisse d’Epargne. BPCE SA group 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 contributionsof the Banques Populaires and the Caisses d’Epargne.

Significant events of 2020 4.2

4.2.1

Economic and financial environment

2020: AN UNPRECEDENTED GLOBAL RECESSION LINKED TO COVID-19 In 2020, the coronavirus pandemic profoundly changed the international and French environment. Most governments, especially in the euro zone, applied strict lockdown measures, sometimes lasting at least two months: this affected more than 40% of the world’s population in April. This lockdown was renewed in Europe and France due to the emergence of a second epidemic wave. This essentially political decision, made solely for health reasons, created an unprecedented, stunning, and unexpected exogenous shock, with production brought to a halt around the world due to a sudden drop in the available workforce. This led to a “managed” collapse of the real economy in the first half of the year on both sides of the Atlantic, then in the fourth quarter in Europe, with severe contraction in the services sector. In addition, oil prices (Brent) first collapsed in March-April (below $20 a barrel on April 21) during the health crisis, mainly due to a historically unprecedented demand shock. They then recovered slowly beginning in May, reaching $51.7/barrel on December 31,due to an exceptional reduction in OPEC+ production (-9.7 million barrels per day) and, starting in November, hopes of an effective and rapid vaccine. In addition, the no-deal Brexit, another uncertainty in 2020 after the US presidential election of Joe Biden on November 3, did not take place. An incomplete last-minutecompromisewas finally reached on December 24. In addition to resolving the issue of UK fishing grounds, it preserves reciprocal access, without quotas or tariffs, to markets for goods and services. This unprecedented recession could automatically trigger a process of systemic deflation and destroy the viability of the economic and social fabric. This highly plausible fear forced political authorities and central bankers around the world to respond with an ultra-rapid, extremely massive, tacitly coordinated, and substantially complementary monetary and budgetary response. The aim was to protect private employees against immediate loss of income due to the sudden rise in unemployment, to avoid a systemic financial panic and bankruptcies of healthy companies due to lack of liquidity, then

to revive activity in the long-term, such as the €750 billion European plan and the €100 billion French plan. Central banks have become buyers of last resort for the public and private debt issued, with the long-term retention in their balance sheet amounting to an implicit monetization of these new Covid-19 debts. Probably ahead of the ECB, the Fed has even revised its doctrine for an “average” inflation target, thus bringing the growth objective to the fore. This makes its monetary policy even more accommodating, thus weakening the dollar against the euro. This “whatever the cost,” proactive approach, which violates the rules of fiscal and monetary orthodoxy from economic history, is the other singularity in this crisis. Long-term rates were automatically greatly affected by the impact of monetary policies that had become more ultra-accommodating than before, and by the deflationary environment. The 10-year fungible French Treasury bond (OAT) stood at -0.15% on average in 2020 (yet -0.34% in December), compared with 0.13% in 2019. There was also a violent stock market crash in March (down 38.6% on the CAC40 from February 19 to March 18), before a relatively spectacular rise in the equity markets (CAC40 at 5,551 points on December 31, compared with 5,978 points at the end of 2019, a decline of only -7.1%), due to the extensive additional support for budgetary and monetary policies, and then to the announcement of vaccines. France, whose GDP ultimately fell by around 8.2% in 2020 according to the INSEE, suffered two successive lockdowns, the first, from March 17 to May 11, having a much more severe economic impact than the second, from the end of October to December 15. In fact, its terms and conditions were a little less restrictive and its duration shorter than in the spring. The estimated loss of activity compared to the end of 2019 was -12% in November, then -8% in December, compared to -31% in April. The contraction in activity was more dramatic than Germany’s in the first half of the year, reaching -18.9% compared to the fourth quarter of 2019, before a strong technical rebound reduced this gap to -3.7% in the third quarter. It benefited from strong public budget support, which allowed household consumption to return to a level close to its pre-crisis level at the beginning of the summer.

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UNIVERSAL REGISTRATION DOCUMENT 2020 | GROUPE BPCE

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