Credit Agricole Profit Inches Up as LCL, Provisions Improve

(Bloomberg) -- Credit Agricole SA fared better than local rivals during dismal trading conditions in the first quarter, and also indicated that its key French retail business is nearing a turning point.

While the bank’s trading unit was caught up in the same volatile markets that ensnared BNP Paribas SA and Societe Generale SA, a revenue decline of 24 percent at its fixed-income trading business stopped well short of the surprise slump at its French competitors. Deputy CEO Xavier Musca also sounded a positive note on its local retail banking unit LCL, where revenue has declined for the last three quarters.

Worries about a slowdown in the euro-area economy and the challenges posed by the European Central Bank’s exit from stimulus measures are clouding the picture for big European banks, which are trying to revive earnings in the face of higher regulation costs and record-low rates. Still, Credit Agricole Chief Executive Officer Philippe Brassac is gearing the bank toward higher profitability and revenue growth, partly through a push in asset and wealth management. He said the bank is on course to meet its targets.

“They limited the damage in terms of trading revenue, and risks are under control. This is positive,” said Francois Chaulet, who helps manage 500 million euros at Montsegur Finance in Paris, including Credit Agricole shares.

The shares gained, even though the bank’s earnings missed some estimates. By 13:45 in Paris, they were up 2.2 percent --their biggest daily gain since January -- at 13.70 euros. That put them among the best-performing European bank stocks Tuesday.

Trading revenue missed average forecasts by nearly one-fifth. Overall revenue rose only 4.4 percent to 4.91 billion euros ($5.83 billion) below the 5.02 billion-euro average of analyst estimates. Net income, at 856 million euros, was up 1.2 percent on the year but also fell short of a consensus forecast of 880 million.

The bank said its operating costs, at constant scope and exchange rates, had fallen 0.7 percent on the year, giving an underlying cost-income ratio of 63.3 percent. It also benefited, like other European banks, from the positive credit cycle, which led to a 13 percent drop in risk provisioning from a year earlier.

LCL Turnaround Nears

The company played up progress at local banking unit LCL in particular. In an interview with Bloomberg TV, Musca pointed to “quite strong activity”’ in new mortgages and corporate lending, although he didn’t give a forecast for LCL’s revenue for the rest of 2018. Its revenue in the first quarter was down 5 percent on the year at 858 million euros, but was down only 0.6 percent when adjusted for a surge in home loan refinancing last year.

Last year, Credit Agricole expanded with Amundi SA’s purchase of Pioneer Investments and the acquisition of three local lenders in Italy, its second-largest retail market. The acquisitions as well as higher asset-gathering income helped offset lower revenues from trading and French retail banking. As it refocused in 2017, Credit Agricole also sold stakes in French private-equity firm Eurazeo SA and Banque Saudi Fransi.

Credit Agricole stock has fallen less than 1 percent so far in 2018, giving the bank a market value of about 39 billion euros. Europe’s benchmark Stoxx 600 banks index is down some 2.5 percent in the same timeframe.

©2018 Bloomberg L.P.