Credit Agricole Gets Boost From Bond Sales, Lower Provisions

Credit Agricole SA got a boost from clients selling bonds and set aside less money for expected bad loans, joining peers in taking a benign view of the pandemic as Europe enters a second phase of lockdowns.

Revenue from capital markets, the biggest driver of Credit Agricole’s investment bank, surged 25% in the third quarter to beat analysts’ highest estimates. The bank earmarked 577 million euros ($673 million) to deal with souring loans, less than in the previous two quarters, primarily to cover sectors vulnerable to renewed lockdowns in Europe including aviation, hotels and restaurants.

Chief Executive Officer Philippe Brassac, who has been betting on corporate banking and asset management to offset weak consumer margins, joined the chorus of European peers urging an eventual return to dividend payments. While a strong markets performance and extensive government economic aid packages have so far boosted lenders across the region, a deteriorating backdrop of new infections and restrictions threatens to bring more pain.

Credit Agricole will review its economic model in the last three months of the year, after sticking to its existing scenario this quarter, Chief Financial Officer Jerome Grivet told reporters.

“However, we cannot infer that this will lead to an explosion in the cost of risk,” he said, referring to provisions for bad loans.

Credit Agricole swung between gains and losses in early Paris trading, as markets weighed the outcome of the U.S. elections. The stock traded 0.6% higher by 9:47 a.m., after falling as much as 2.6%. It’s down about 43% this year.

Other third quarter earnings highlights:

  • Revenue of 5.1 billion euros; analyst estimate was 4.95 billion euros
  • Net income of 1.1 billion euros; estimate was 77O.6 million euros
  • Corporate and investment banking revenue of 1.3 billion euros; estimate was 1.4 billion euros
  • CET1 capital ratio of 12.6%; estimate was 11.8%
  • Capital boosted by dividend suspension; provision of 0.16 cents per share in 3Q

Underlying net income of 1.1 billion euros for the third quarter was down 9.1% from a year ago but well ahead of estimates in a Bloomberg survey. The figures exclude the effects of accounting changes for units that Credit Agricole intends to sell, including its Dutch consumer finance business.

The firm credited a jump in clients issuing bonds for the performance of its markets business, which helped to counteract slowing activity in interest rates, foreign exchange and structured financing. Overall, the investment bank slightly missed revenue forecasts while net income fell more than a quarter.

Italian Ambitions

Credit Agricole could be one of the first European players to launch a cross border deal as the pandemic pushes the sector to consolidate, breaking with its previous strategy of growing through partnerships. The lender is studying strategic options with Italian peer Banco BPM SpA, which could include a merger with its Italian activities, Bloomberg has reported.

“We have been very ambitious on Italy for about 30 years,” Brassac told reporters. “Our absolute priority is to have organic growth capacities.”

He declined to comment on Banco BPM, but said “we have always affirmed that we are open to opportunities.”

Credit Agricole’s investment arm, Amundi SA, saw assets under management reach a record 1.7 trillion euros in the third quarter, driven by inflows of 34.7 billion euros, positive market effects, and the integration of Sabadell Asset Management. The business, having grown through acquisitions, is now focused on its development in Asia, where it aims to manage 500 billion euros by 2025.

©2020 Bloomberg L.P.

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