Credit Agricole Profit Beats Estimates as Provisions Decline

(Bloomberg) -- Credit Agricole SA’s profit came in above expectations as it joined European peers in posting lower provisions to reflect the improving economy.

The Paris-based lender said net income jumped to 1.97 billion euros ($2.3 billion) in the second quarter, more than double the same period last year and above the 1.2 billion euros anticipated by analysts polled by Bloomberg. Provisions to cover potentially souring loans fell 67% to 279 million euros, which was also far better than estimates.

The economic signals and forecasts “go rather in the way of an improvement, which would not lead to an increase in cost of risk, and this is why we are very confident,” said deputy chief executive officer Xavier Musca in a call with reporters.

After setting aside billions of euros when when the pandemic shuttered swathes of the economy last year, European lenders are showing optimism that vaccinations can stoke a recovery, translating into falling provisions and surging profits. Rival Societe Generale SA’s profits beat estimates earlier this week as it lowered its guidance on full-year provisions.

Chief Financial Officer Jerome Grivet said that the optimism remains even as the delta variant of the coronavirus is causing infections to rise in many European countries.

Supportive Measures

“As long as the pandemic is not fully under control we will continue to have some measures that will support the economy globally and that will benefit to banks specifically,” Grivet said in an interview on Bloomberg TV on Thursday. “So I’m not very worried specifically by this delta variant.”

Credit Agricole shares, which surged as much as 2.57% at market open on Thursday, were down 0.37% at 4:09pm.

Credit Agricole’s net income also got a 258 million-euro lift from an accounting benefit known as badwill, linked to the recent acquisition of Italy’s Credito Valtellinese SpA. This boost gave the group its highest quarterly net income since 2007.

The bank also gave details on the buyback plan it announced in February, saying it would spend up to 500 million euros on shares in the fourth quarter.

It was a more muted quarter at the corporate and investment bank, with revenue falling 8.5% to 1.56 billion euros, slightly worse than estimates. Revenue from the trading of fixed income products fell 28% compared to a buoyant quarter a year ago, mirroring the trend at rival BNP Paribas SA and many U.S. banks.

Retail Increase

The group depends less on its markets unit than peers, meaning it was less affected by the trading meltdown induced by the pandemic last year. However, this leaves the bank reliant on consumer margins that have proved weak in recent years, leading Chief Executive Officer Philippe Brassac to cut jobs in several of its units, downsize its domestic retail banking unit LCL, while seeking to expand its retail footprint in Italy.

The bank’s international retail operations, a key element of its expansion strategy, saw revenue increase by a quarter to 801 millions euros, better than estimates.

Other highlights from the bank’s earnings:

Amundi SA, Credit Agricole’s investment arm, saw its net income double over the last quarter after a one-time tax gain, as buoyant equity markets fueled a surge in the firm’s performance fees. The firm saw assets under management rise to a record 1.79 trillion euros at the end of June, as investors poured in 7.2 billion euros.

Credit Agricole’s CET1 ratio, a key measure of its financial strength, was down 0.1 percentage point at 12.6% at the end June. In last week’s stress tests published by the European Banking Authority, the bank emerged as the strongest listed lender in France.

Given its financial strength, Credit Agricole could round up its future payouts to compensate for the dividend on its 2019 profits that regulators banned from payment last year, Grivet said in a call with analysts on Thursday.

On the 70 cents per share dividend that was planned for 2019, 30 cents were compensated for in the bank’s 2020 payout plan, leaving 40 cents to be returned to shareholders, hopefully in the next two years, the CFO said.

©2021 Bloomberg L.P.