Bloomberg News

Credit Agricole Second-Quarter Net Drops 67% on Greece

August 28, 2012

Credit Agricole CEO Jean-Paul Chifflet

Jean-Paul Chifflet, chief executive officer of Credit Agricole SA. Photographer: Fabrice Dimier/Bloomberg

Credit Agricole SA, France’s third- largest bank by market value, posted a 67 percent decline in second-quarter profit on losses in Greece and a writedown of its stake in Intesa Sanpaolo SpA. (ISP)

Net income fell to 111 million euros ($138.6 million) from 339 million euros a year earlier, the bank, based near Paris, said in a statement today. The company booked 370 million euros of losses in Greece, as well as a 427 million-euro charge on its holding in Milan-based Intesa. Losses were partly cushioned by a 140 million-euro gain on Credit Agricole’s own debt.

Credit Agricole, led by Chief Executive Officer Jean-Paul Chifflet, is shutting its riskiest investment-banking activities and weighing offers from Greece’s three largest lenders for its Emporiki unit in the country, which is stuck in a five-year recession. The bank said it’s still studying the bids.

“Greece and Italy keep poisoning their results,” said Gregory Moore, who helps manage 200 million euros at Montsegur Finance in Paris, including shares in Credit Agricole. (ACA:US) “It’s disappointing as we didn’t get more significant details” about the sale of Emporiki, he said.

Credit Agricole fell 0.4 percent to 4.27 euros in Paris trading. The shares have fallen 34 percent over the past 12 months, trailing the 4.7 percent increase in the 38-member Bloomberg Europe Banks and Financial Services Index.

Exclusive Talks

Credit Agricole has taken no decision on entering into more advanced talks related to any of the offers for Emporiki, it said in the statement. Discussions are continuing with the Bank of Greece, the Hellenic Financial Stability Fund and the European Commission “on the terms and conditions to which the transaction would be subject,” the bank said.

“We need to carry out our goals,” Chifflet told journalists on a call today. Credit Agricole aims to exit Emporiki and Greece, and any remaining stake in the Greek unit won’t exceed 10 percent, he said. Credit Agricole “hopes” to close the Emporiki sale by Dec. 31, the CEO said at a press conference.

National Bank of Greece SA and Eurobank Ergasias SA this month submitted bids for Emporiki, joining Alpha Bank SA (ALPHA), Greece’s No. 3 lender, in their pursuit of Credit Agricole’s unprofitable Athens-based unit. Emporiki’s loan book makes Credit Agricole the foreign bank with most to lose should Greece exit the euro.

Entering exclusive negotiations “is a matter of weeks,” and sealing an agreement will also require weeks, Chief Financial Officer Bernard Delpit told reporters.

Asked whether Credit Agricole may consider keeping a funding exposure to some of Emporiki’s least-performing loans, Delpit said that “if we keep assets in Greece, for sure it wouldn’t be the difficult assets.”

Capital Increase

Credit Agricole provided 2.3 billion euros in capital to Emporiki in July by converting a portion of its funding to the Greek unit into equity. Following the capital injection, Credit Agricole’s equity exposure to Emporiki was 2.7 billion euros and its net funding exposure fell to 2.3 billion euros.

Credit Agricole increased Emporiki’s capital following a request from the Bank of Greece, Chifflet told journalists.

Greece is overhauling its banks after lenders sustained losses on their holdings of government bonds in the country’s debt swap, the biggest sovereign restructuring in history. The country obtained a 130 billion-euro bailout in March from the European Union and International Monetary Fund which earmarked 50 billion euros for recapitalizing the banks.

The HFSF is helping to oversee Emporiki’s sale as preparations continue to put capital into the country’s banks. Xavier Musca, former French President Nicolas Sarkozy’s chief of staff, joined Credit Agricole last month as deputy CEO in charge of international retail-banking.

Asset Reductions

Credit Agricole, founded in 1894 as a French farmers’ bank, invested 2.2 billion euros in 2006 to buy a majority stake in Emporiki, the least profitable of Greece’s top banks at the time. Since then, Emporiki has been unprofitable every year except 2007, with accumulated losses for Credit Agricole of about 5.7 billion euros by the end of June.

Credit Agricole is also reducing minority equity investments in European financial institutions. The French bank booked a 28 million-euro gain by selling its shares in Portugal’s insurance firm BES Vida to Banco Espirito Santo SA. (BES) Credit Agricole reduced its “ownership interest” in Milan- based Intesa to below 2 percent and lowered its stake in Madrid- based Bankinter SA (BKT) to below 20 percent, it said today.

Credit Agricole is “open” to all solutions regarding its holding in Bankinter, Chifflet said, without elaborating.

Credit Agricole last year started trimming its balance sheet and the bank in December scrapped its 2014 earnings targets. Credit Agricole Group, the entity regulators and rating firms look at for compliance with international rules, expects to reach a 10 percent core capital ratio by the end of 2013 under Basel III rules, the bank confirmed today. Chifflet repeated that a capital increase “is not on the agenda.”

Credit Agricole joined BNP Paribas SA (BNP) and Societe Generale SA (GLE) in cutting investment-banking jobs and assets as the crisis curbs access to funding in dollars, regulators impose stricter capital rules and French President Francois Hollande’s government prepares legislation to isolate the banks’ riskiest businesses.

Investment Bank

Chifflet, 62, told investors at their May annual gathering that he favors “banning or limiting activities recognized as speculative.” While splitting retail banking and investment banking wouldn’t be a “miracle solution,” Credit Agricole “has put the foot on the brake” in equity derivatives and credit derivatives and has stopped all proprietary trading, the CEO repeated today.

Credit Agricole at the end of June achieved 97 percent of its planned 35 billion-euro cut in risk-weighted assets, the bank said. Most of Credit Agricole’s asset reductions come from its corporate- and investment-banking, or CIB, unit, which is closing operations in 21 countries. The division aims for “medium-term” annual revenue of 5.4 billion euros, up from 4.73 billion euros in 2011, the bank said in April.

Second-quarter profit at the CIB unit fell to 289 million euros from 331 million euros a year earlier. While Credit Agricole’s net losses from subprime-era activities it is winding down were trimmed to 7 million euros, CIB earnings benefitted from 185 million euros in gains from revaluing debt issues and loan hedges, according to the statement.

Credit Agricole’s CEO also confirmed today that the bank has been cooperating with “all U.S. authorities for several years” regarding Office of Foreign Assets Control regulations. Credit Agricole continues reviewing internally “operations regarding physical persons and all the countries” that face a U.S. embargo, Chifflet said.

To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net;


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