Credit Agricole profit surges after disposal of Greek unit

Credit Agricole SA (ACA), France’s third-largest bank by market value, said profit surged in the second quarter after the sale of its unprofitable Greek unit.

Net income jumped to 696 million euros from a restated 56 million euros a year earlier, the bank, based near Paris, said on its website. Earnings beat the 481.6 million-euro average estimate of eight analysts surveyed by Bloomberg.

Credit Agricole is emerging from two consecutive annual losses after selling its Athens-based Emporiki unit, a business that cut earnings by about 370 million euros in the second quarter of 2012. The bank, led by Chief Executive Officer Jean-Paul Chifflet, also sold its brokerage units and boosted profit at its corporate and investment bank.

The results reflect a “satisfying situation” for Credit Agricole, even if “the economic environment remains fragile,” Chifflet, 63, told journalists on a call. He reiterated that the bank’s net income will be “significantly positive” in 2013.

Credit Agricole disclosed earnings figures in a spreadsheet presentation on its website hours ahead of a scheduled release. The documents were posted after the close of markets in France, according to an e-mailed statement from the firm, which blamed a “technical error.”

The bank rose 2.5 percent to 7.84 euros in Paris trading Monday, bringing the gain this year to 29 percent and giving the company a market value of 19.6 billion euros. BNP Paribas SA (BNP), France’s largest bank, has climbed 16 percent this year, while Societe Generale (GLE) SA advanced 21 percent.

Leverage Ratio

The three largest French banks reported combined profit of about 3.4 billion euros in the quarter, the highest since the Greek debt swap in early 2012. Societe Generale, which also sold an unprofitable Greek consumer-banking unit, said last week that earnings more than doubled to 955 million euros on a surge in corporate- and investment-banking revenue. BNP Paribas reported net income of 1.76 billion euros in the period.

Credit Agricole Group, the entity regulators and rating firms look at for compliance with international rules, had a common equity Tier 1 capital ratio under fully applied Basel III standards of 10 percent at the end of June, according to the presentation.

The leverage ratio, which measures capital as a proportion of total assets, was 3.5 percent, based on the company’s understanding of how European authorities will implement international standards, the bank said in the document.

The leverage ratio “won’t be a reason to engage a major reduction of the balance sheet’s size,” Chief Financial Officer Bernard Delpit said.

Cost Reductions

Regulators are questioning the risk weightings banks apply to their assets, which are typically set by the lenders’ own models, and calling for inclusion of the broader measure of leverage. Under current Basel leverage proposals, banks would have to hold equity equal to 3 percent of total assets by 2018.

Credit Agricole SA will comply this year with a 100 percent Basel III 30-day liquidity ratio designed to force banks to hold enough easy-to-sell assets to resist a credit squeeze, the bank said on its website. The Credit Agricole Group will comply with the 30-day liquidity ratio next year.

Credit Agricole, like BNP Paribas and Societe Generale, is pushing through cost cuts as sputtering economic growth curbs lending. The lender said in February that it expects to reduce expenses by 650 million euros by 2016 through changes in information technology, real estate and procurement.

Profits from Credit Agricole’s French regional-bank network amounted to 256 million euros in the quarter, surpassing the 229 million-euro average estimate of four analysts.

Retail Lending

President Francois Hollande’s government is prodding banks to lend more to help France emerge from a recession, while cutting them some slack on other fronts. French banks were spared a split of investment-banking businesses as lawmakers passed a bill this month to segregate proprietary trading, the first such move in Europe. New French regulations are also giving the lenders a liquidity boost of 30 billion euros by letting them keep additional client deposits in tax-free accounts on their balance sheets.

Cariparma, the bank’s Italian branch network, had a 31 million-euro profit, down 25 percent from a year earlier. Cariparma’s loan-loss provisions rose 9.4 percent from the previous year, the bank said.

Credit Agricole’s total provisions for bad loans were 680 million euros, a 14 percent improvement from a year earlier, the document shows.

“We shouldn’t have any significant slide in the cost of risk this half,” Chifflet told reporters.

Investment Bank

Profit from Credit Agricole’s corporate and investment bank rose as revenue from capital markets and investment-banking activities jumped 24 percent, when restated for the disposal of its brokerage units and other 2012 adjustment efforts, according to the presentation. Credit Agricole has no proprietary trading and has stopped most of its equity-derivatives business, it said in September.

Credit Agricole is seeking a 12 percent return on equity, a profitability measure, at the corporate and investment bank over the “medium term” by cutting fixed costs by about 15 percent compared with 2011, the firm said in March.

At the savings-management division, which includes asset management, insurance, private banking and custody, earnings fell to 410 million euros from 413 million euros, the presentation shows.

[Bloomberg]