Credit Agricole Posts $3.6 Billion Loss After Greek Sale

Credit Agricole Posts 2.85 Billion-Euro Loss on Greek Sale
Credit Agricole is selling Athens-based Emporiki for a token price of 1 euro, it said Oct. 17. The French bank will inject more funds into Emporiki, bringing the total capital boost since July to 2.85 billion euros, and buy 150 million euros of convertible bonds issued by Alpha Bank. Photographer: Chris Ratcliffe/Bloomberg

Credit Agricole SA, France’s third-largest bank, posted a quarterly loss that exceeded analysts’ estimates on costs tied to the sale of its Greek unit.

The shares fell the most in a year after the bank, based outside of Paris, reported a third-quarter net loss of 2.85 billion euros ($3.62 billion). That’s wider than the 1.88 billion-euro average estimate of seven analysts surveyed by Bloomberg.

Credit Agricole, led by Chief Executive Officer Jean-Paul Chifflet, agreed to sell its Greek unit, Emporiki, last month at a loss of 1.96 billion euros as the lender tries to insulate itself from the potential costs of the country’s exit from the single European currency.

“The results were a miss, pointing to lower performance in most of the activities,” Credit Suisse Group AG, which has a neutral rating on the stock, said today in a note to investors. While the results “fall in a transition period due to the deconsolidation,” they “still show mediocre quality performance in the underlying businesses,” it said.

Credit Agricole fell 9.1 percent to 5.38 euros by 2:10 p.m. in Paris, the most since November 2011. The shares have risen 24 percent in 2012, giving the firm a market value of 13.5 billion euros. BNP Paribas SA, France’s largest bank, has gained 29 percent this year, while Societe Generale, the country’s No. 2 lender by market value, has added 39 percent.

Greek Holdings

French banks held $40.1 billion in Greek public and private debt at the end of June, or 55 percent of all foreign claims, according to data compiled by the Bank for International Settlements. German lenders had $5.5 billion in Greek debt holdings while U.K. banks held $5.6 billion, BIS data show.

Emporiki’s lending book is about 10 times bigger than Geniki Bank, the Athens-based business that Societe Generale is selling. Banks wrote down their Greek government debt holdings by about 100 billion euros as part of the world’s biggest sovereign restructuring agreed in March. Deutsche Bank AG, Germany’s biggest bank, held 67 million euros of Greek sovereign debt at the end of September, while Commerzbank AG has cut its exposure to zero after a 2.2 billion-euro writedown.

Leaving aside the costs related to the Emporiki sale and additional non-recurring charges, Credit Agricole had a profit of 716 million euros in the quarter, the company said. Profit from the French regional banks fell 3.5 percent, while earnings at the LCL branch network declined 11 percent.

Accounting Charges

The bank also booked an accounting charge of 647 million euros tied to the theoretical cost of buying back its own debt as market prices fluctuate. So-called credit valuation adjustments require banks to book losses when the value of their debt rises, and gains when it declines, on the theory that a loss, or profit, would be realized were the bank to repurchase that debt.

Credit Agricole recorded a 572 million-euro writedown mostly on its Italian consumer-credit business, a 181 million-euro loss linked to its sale of CA Cheuvreux, and a 193 million-euro accounting charge on its stake in Spain’s Bankinter SA.

Credit Agricole is selling Athens-based Emporiki for a token price of 1 euro to Alpha Bank, it said Oct. 17. The French bank will inject more funds into Emporiki, bringing the total capital boost since July to 2.85 billion euros, and buy 150 million euros of convertible bonds issued by Alpha Bank. Credit Agricole and Athens-based Alpha aim to complete the transaction by the end of this year.

Capital Ratio

Credit Agricole is also shutting its riskiest investment-banking businesses. The bank has stopped most of its equity derivatives and it has no proprietary trading activity, according to a Sept. 26 presentation. The lender is selling its brokerage CLSA to China’s Citic Securities Co. in a transaction valued at $1.25 billion.

Credit Agricole started trimming its balance sheet last year and 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 core capital ratio of more than 10 percent by the end of 2013 under regulations proposed by the Basel Committee on Banking Supervision, the bank reiterated today.

Credit Agricole has no plans for a capital increase, CEO Chifflet told journalists on a call today.

While Credit Agricole’s funding to Emporiki made it the foreign lender with the most to lose should Greece exit the euro, the planned sale of the unit to Alpha will create the southern European country’s second-largest bank by loans.

Investment Banking

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

The lender, like BNP Paribas and Societe Generale, cut investment-banking jobs and assets as Europe’s debt crisis last year curbed their access to short-term dollar funding, regulators imposed stricter capital rules and French President Francois Hollande considers legislation by year’s end to isolate the banks’ most speculative activities.

French banks are in “exploratory discussions” with the government on those proposals, Chifflet told reporters. “We’ve got the will to negotiate inch by inch” as part of the talks revolve around market-making activities, he said.

Debt Charges

Societe Generale yesterday posted an 86 percent decline in third-quarter profit as losses on asset sales and a charge on its own debt outweighed an investment-banking rebound. BNP Paribas said on Nov. 7 that quarterly profit more than doubled, helped by higher trading revenue.

Credit Agricole’s corporate and investment bank had a 302 million-euro net loss in the quarter, hurt by own-debt charges and the cost of selling CA Cheuvreux. Excluding one-time items, the division’s like-for-like profit fell 15 percent to 325 million euros, the bank said.

Securities firms have posted gains in revenue since European Central Bank President Mario Draghi’s July pledge to do “whatever it takes” to defend the euro sparked a rally in bond markets. French banks, the biggest foreign holders of private and public debt in the troubled economies of Greece, Ireland, Italy, Portugal and Spain, are benefiting from the ECB’s moves as the crisis enters its fourth year.

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