Credit Agricole Jumps as Trading Fuels Surge in Profit

  • Lender books gains on reorganization; revenue climbs 12%
  • Lender plans to pay all-cash dividend of 60 cents per share

Credit Agricole SA jumped the most in four months after a surge in fixed-income revenue boosted third-quarter profit and the French lender pledged to keep its dividend at least stable.

Net income climbed to 1.86 billion euros ($2.1 billion) from 930 million euros a year earlier, the Montrouge, France-based bank said Tuesday. That’s in line with the 1.81 billion-euro average estimate of seven analysts surveyed by Bloomberg. Credit Agricole plans to pay an all-cash dividend of 60 cents per share for 2016 and to keep the payout at least stable starting in 2017.

Chief Executive Officer Philippe Brassac, 56, in his second year in the job, completed a 18.5 billion-euro deal to sell holdings in more than three dozen regional lenders that own a majority stake in the bank, simplifying the structure and raising capital buffers. While France’s third-largest bank has seen record-low interest rates erode earnings at its consumer-banking business, LCL, it benefited from a recovery in bond trading.

“They’re going in the right direction and give confidence for the future,” said Karim Bertoni, who helps manage about 6.9 billion Swiss francs ($7.1 billion) at Bellevue Asset Management in Switzerland. “Interest rates remain low, but if they start rising again, it could be positive for banking in general.”

Credit Agricole plans to maintain a 50 percent payout rate. The lender awarded shareholders with 60 cents a share for 2015, giving investors the option to take payment in stock.

The shares jumped 4.9 percent to 10.21 euros at 12:36 p.m. in Paris, the highest level since March 21. While they have declined about 6.2 percent this year, France’s largest lenders have outperformed their European peers that have struggled to boost earnings and capital buffers. BNP Paribas SA, France’s largest bank, is little changed for 2016, while Societe Generale SA, has slipped about 14 percent.

Excluding one-time items such as the 1.25 billion-euro gain tied to the bank’s restructuring, profit increased 27 percent to 1.02 billion euros in the third quarter. That beat the 752 million-euro average analyst estimate in a Bloomberg survey.

Underlying revenue rose 12 percent to 4.41 billion euros, helped by higher trading income and increased demand for asset-management products. Provisions set aside for doubtful loans rose 4 percent to 444 million euros. The bank also booked a 50 million-euro charge for legal risks, in line with a provision in the second quarter.

While the environment remains “difficult,” Credit Agricole remains “very confident” for the French consumer-banking unit, Brassac said on a call with journalists. “There are no more questions on capital” at Credit Agricole and therefore the bank can provide “even greater visibility for shareholders” in terms of its dividend, he added.

Securities Trading

Some of the world’s largest investment banks have seen a jump in third-quarter earnings, led by a surge in fixed-income revenue. Deutsche Bank AG, Societe Generale, Barclays Plc and UBS Group AG all reported gains in bond trading.

Credit Agricole’s large customer unit posted a 38 percent increase in underlying third-quarter revenue to 1.5 billion euros, excluding accounting effects, driven by a 43 percent jump in trading income. Fixed income, foreign exchange and credit had “good momentum” following the U.K.’s decision to leave the European Union in June, the lender said.

Chief Financial Officer Jerome Grivet said on a call with analysts on Tuesday that it’s “way too early” to assess the dynamic of capital markets activities in the fourth quarter.

“The driver is going to remain the appetite of our customers to enter the market,” he said.

Consumer Business

The LCL consumer-banking business had a loss of 30 million euros in the third quarter after a profit of 149 million euros a year earlier. The unit took a 300 million-euro pretax charge to adjust its funding costs. Some 4.4 billion euros in loans were renegotiated by customers as a result of lower interest rates, down from 4.6 billion euros a year earlier.

“We’ve seen in September and again in October a significant level of renegotiations,” Grivet said.

LCL’s adjustment in funding costs should boost revenue by 18 million euros in the fourth quarter and 70 million euros in 2017, Credit Agricole said in a presentation. The company is cutting costs at the division at a faster pace than initially estimated, the CFO said.

At the savings business, which includes insurance, the Amundi fund-management division and wealth management, underlying net income jumped 22 percent to 447 million euros. Amundi is looking to make an offer for UniCredit SpA’s Pioneer Global Asset Management unit, with the deadline for binding bids not yet expired, Brassac said.

The reorganization, launched in February, resulted in exceptional gains in the third quarter and a capital-ratio increase of 72 basis points at the publicly traded bank. For Credit Agricole Group, the entity most closely watched by regulators, the core capital level rose to 14.4 percent at the end of September, up 100 basis points from a year ago.

As part of the overhaul, Credit Agricole is targeting annual profit of more than 4.2 billion euros in 2019, with 900 million euros in annual gross cost savings. The CFO reiterated the goals, adding that the lender has “comfortable” capital buffers and is “ready to make extra efforts in 2017 to make sure the dividend doesn’t go down.”

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