(Updates with Fitch downgrade in 11th paragraph, analyst comment in 16th paragraph.)
Dec. 15 (Bloomberg) -- Credit Agricole SA, France’s second- largest bank by assets, will report a loss for 2011 and eliminate 2,350 jobs at its investment-banking and consumer- finance units as Europe’s debt crisis erodes economic growth.
Credit Agricole, based outside Paris, will book about 2.5 billion euros ($3.24 billion) in fourth-quarter writedowns on investments, including stakes in Spain’s Bankinter SA and Banco Espirito Santo SA of Portugal, it said in a statement yesterday.
“The losses are enormous,” said Jacques-Pascal Porta, who helps manage about 500 million euros at Ofi Gestion Privee in Paris. “This is worse, much worse than anything you might have expected.”
The bank scrapped a dividend for 2011 and said it can’t confirm its 2014 goals because of “the lack of visibility on the economic and financial climate.” Credit Agricole joins Paris-based competitors BNP Paribas SA and Societe Generale SA in reducing corporate- and investment-banking staff as Europe’s sovereign-debt crisis escalates and regulators demand higher capital ratios.
The average estimate of 16 analysts surveyed by Bloomberg was for 2011 net income of 2.2 billion euros at Credit Agricole. The company has posted annual profits every year since its 2001 stock exchange listing.
Credit Agricole dropped as much as 4.7 percent in Paris trading, and was down 6.4 cents, or 1.5 percent, to 4.16 euros at 12:20 p.m. The stock has fallen 56 percent this year.
‘Surprises in Store’
Chief Executive Officer Jean-Paul Chifflet was counting on a rebound at Credit Agricole’s international retail-banking business to attain a 2014 profit goal of 6 billion euros to 7 billion euros. Credit Agricole was alone among France’s four largest banks in passing European stress tests with no need for further capital. Credit Agricole Group plans to reach a common equity Tier 1 capital ratio of 10 percent under Basel III rules at the end of 2013, it said yesterday.
“The future could still have surprises in store,” Chifflet said on a conference call with reporters. “Credit Agricole group wants to be solid.”
Credit Agricole is following Italy’s UniCredit SpA in writing down the value of investments. UniCredit last month posted a 10.6 billion-euro third-quarter loss after marking down years of acquisitions and said it will close its western European brokerage to rein in costs.
Credit Agricole said on Sept. 28 that it planned to reduce financing needs by as much as 52 billion euros, including between 15 billion euros and 18 billion euros at its corporate- and investment-banking unit.
Fitch Ratings yesterday downgraded Credit Agricole’s long- term issuer default rating to A+ from AA- as it cut credit grades on four other European lenders by one level, citing “stronger headwinds facing the banking industry.” Credit Agricole has “only adequate capital ratios compared with highly rated peers,” Fitch said.
To reach the group’s end-2013 Basel III capital goal, Credit Agricole’s listed company will cut its risk-weighted assets by 60 billion euros, reducing the use of capital for the equity-derivatives and corporate-financing businesses.
Credit Agricole’s corporate and investment bank will close operations in 21 countries, remaining active in 32, while stopping its equity-derivatives activities.
The bank is shedding about 1,750 positions at the corporate and investment bank, including 550 in France, it said, without giving a further breakdown. The firm, which is also eliminating 600 consumer-finance positions, isn’t planning job cuts at asset-management unit Amundi or elsewhere, Chifflet said.
Credit Agricole will have about 500 million euros of fourth-quarter net losses stemming from disposing of portfolios and “provisions set aside for all job adjustment measures,” it said. For 2012, the bank said it expects 470 million euros of net losses from asset disposals.
The scaling down of Credit Agricole’s investment-banking business is a “desirable outcome,” said Robin Down and Lorraine Quoirez, London-based analysts at HSBC holdings Plc, in a note to investors today. “In three-four years time, the business will be increasingly a plain vanilla European retail banking operation with an asset-management business layered on top.”
Chief Financial Officer Bernard Delpit declined to estimate Credit Agricole’s fourth-quarter loss. The bank had net income of 1.6 billion euros in the nine months through September, up 0.4 percent from a year earlier, it said Nov. 10.
Moody’s Investors Service cut the credit ratings of Credit Agricole, BNP Paribas and Societe Generale last week, citing funding constraints and deteriorating economic conditions amid Europe’s two-year-old debt crisis. Moody’s lowered the long-term debt ratings of Credit Agricole and BNP Paribas by one level to Aa3, the fourth-highest investment grade.
Credit Agricole is making “enhanced efforts to boost deposits” at its unprofitable Athens-based retail-banking unit, Emporiki Bank of Greece SA, it said.
--Editors: Frank Connelly, Vidya Root
To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at firstname.lastname@example.org
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