Nov. 13 (Bloomberg) -- Credit Agricole SA, France's third- largest bank by market value, said profit fell 62 percent in the third quarter on writedowns tied to U.S. bond insurers and the impact of Lehman Brothers Holdings Inc.'s failure.

Net income dropped to 365 million euros ($458 million) from 954 million euros a year earlier, the Paris-based bank said in a statement today. Earnings beat the 153 million-euro median estimate of 13 analysts surveyed by Bloomberg.

``The risk-reduction process that we've entered into in June is bearing fruit'' at the investment-banking unit, Chief Executive Officer Georges Pauget said on a conference call with journalists. ``For sure, October results illustrate that.''

Calyon, the bank's securities unit, fared better last month than French rivals BNP Paribas SA and Natixis SA, which both reported losses at their investment banks during the month amid turbulent markets. There was ``no accident'' at Calyon in October, Chief Financial Officer Bertrand Badre told reporters on a conference call today.

BNP Paribas's CFO, Philippe Bordenave, said on Nov. 5 that equity-derivative losses brought revenue at its securities unit to ``below zero'' last month. Natixis, the worst-performing French banking stock this year, said yesterday its securities business had a loss of about 250 million euros in October, as well as risk provisions of about the same amount.

Credit Agricole fell 35 cents, or 3.6 percent, to 9.40 euros in Paris trading, bringing the decline this year to 56 percent. The results were published after the close of trading.

`Unprecedented Conditions'

The collapse of New York-based Lehman, which froze up credit markets, led to 220 million euros of writedowns and loan provisions at Credit Agricole in the third quarter. Markdowns on debt backed by bond insurers amounted to 500 million euros in the period, the French bank said. Calyon posted its fourth consecutive quarterly loss.

``The financial crisis that characterized the business climate during the first half intensified during the third quarter, creating unprecedented conditions in the financial sector,'' the bank said in the statement. ``The interbank market collapsed, issues of fixed-income securities ground to a virtual halt, several major operators ceased to exist, and others were rescued through forced mergers, buyouts or state bailouts.''

Pauget, 61, is reorganizing Calyon after replacing the head of the unit in May and cutting the capital allocated to the division. The bank said on Sept. 10 it plans to eliminate 500 jobs at the unit, splitting the reductions equally between French and international operations. The bank pledged to save 300 million euros at Calyon by the end of next year.

Calyon Loss

Credit Agricole plans to scale back risk-taking at Calyon's capital markets business and shut structured credit and derivatives activities that result in ``risks that may be difficult to cover during periods of instability,'' it said in September.

The securities unit had a third-quarter loss of 226 million euros, compared with an 11 million-euro profit a year earlier. Earnings beat the 624 million-euro loss estimated by analysts. The investment bank recorded 726 million euros of writedowns.

Credit Agricole's total bad-loan provisions more than doubled to 740 million euros from 275 million euros a year earlier, and exceeded the 510 million-euro estimate of analysts. The bank booked 119 million euros of provisions on Lehman.

Provisions had ``an increase, but we can not say that it was an extremely brutal and unexpected increase,'' Pauget said.

Credit Agricole had at least 7.3 billion euros of gross revenue writedowns and provisions related to the global financial crisis since the start of 2007, more than any other French bank.

Consumer Banking

Net income at the LCL French banking network was stable at 159 million euros, missing analysts estimates for a 171 million- euro profit. Earnings from the French retail branches of the 38 regional banks that control Credit Agricole fell 24 percent to 136 million euros, missing estimates of 180 million euros.

Earnings at the asset management, insurance and private banking division dropped 27 percent to 291 million euros, falling short of analysts' estimates for a 390 million-euro profit.

Earnings at the international retail operations fell 65 percent to 47 million euros in the quarter, hurt by a 73 million- euro loss from consumer-banking unit Emporiki Bank of Greece SA.

Credit Agricole announced plans in May to sell 5 billion euros of assets in 18 to 24 months, and carried out a 5.9 billion-euro rights offer in July to lift capital.

``We have got no urgency'' to make asset sales, Pauget said today, adding that Credit Agricole aims to make asset disposals with ``capital gains.''

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

Last Updated: November 13, 2008 14:19 EST