Credit Agricole to Resume Payouts as Covid Provisions Fall

(Bloomberg) -- Credit Agricole SA joined European rivals in expressing optimism that the worst of the Covid-19 pandemic may have passed, reporting lower provisions and plans to pay a higher-than-expected dividend.

The Paris-based lender said Thursday it remained profitable in the fourth quarter with net income of 124 million euros ($150 million), despite a goodwill charge at its Italian unit that analysts had expected to drag the bank to a loss.

Credit Agricole’s provisions for bad loans were 59% higher than a year earlier, but down on the previous quarter and the lowest since the onset of the pandemic. France is holding off on a third national lockdown as its economy struggles to recover to pre-Covid levels, yet Chief Executive Officer Philippe Brassac is hopeful that an end is in sight.

“We should, and it’s a shared hope, have a rather clear exit from the health crisis in the course of 2021, with the effects it can have on the economy,” Brassac said on a call with reporters.

The bank joined some peers around Europe in pledging to resume dividends, after the European Central Bank partially lifted a ban that was implemented in the early stages of the pandemic. Credit Agricole will offer a payment of 80 euro cents per share at its annual general assembly in May, more than the 0.33 euros analysts had forecast.

Credit Agricole’s shares rose as much as 5.7% at market open in Paris.

The plan includes an option of payment in shares that is expected to be taken by the regional banks and employee saving funds, that together represent roughly 60% of Credit Agricole’s shareholder base.

If some minority shareholders take the scrip option, the bank intends to proceed to a share buyback as soon as next June to offset the impact of the plan on earnings per share. The bank may proceed to further buybacks if the ECB lifts its payout restrictions in the fourth quarter.

The exceptional set up, which allows the bank to offer an 8% yield, “strictly respects the ECB’s latest recommendation,” it said.

What Bloomberg Intelligence Says

Credit Agricole’s plan to pay a dividend of 80 euro cents a share for 2020, well ahead of consensus, makes clever use of the scrip option that its parent company will take up as well as buybacks and an unwind of the Switch guarantee to neutralize dilution. A goodwill writedown is no real surprise, and solid 4Q earnings set up 2021 well.

-- Jonathan Tyce, BI banking analyst. For the full note click here

Under Brassac, Credit Agricole has been betting on corporate banking and asset management to counter weak consumer margins, meaning the bank relies less than domestic peers on its trading business. A slump in markets activity led rival Societe Generale SA to its first annual loss in at least three decades on Wednesday, despite also booking lower than anticipated provisions for Covid-related losses.

Credit Agricole did report a slowdown in trading in the final three months of the year, when capital-markets revenue fell 5% on a year earlier to 545 million euros. A 7.4% decline in fixed-income revenue was in contrast with BNP Paribas SA and Deutsche Bank AG, whose bond traders recorded gains of 22% and 17% respectively in the same period. Wall Street’s biggest banks also saw their fixed-income trading revenue grow by 10% on average in the three months through December.

“Our clients had a bit less uncertainty regarding the hedging of their rate and currency risks, so our revenue slightly decreased compared to a fourth quarter in 2019 that was much more volatile,” Jacques Ripoll, head of Credit Agricole CIB, told reporters on a call.

Italian Deal

The group intends to make progress this year on its effort to buy Credito Valtellinese SpA and strengthen its position in Italy’s wealthy north. The bank expects to launch a formal bid in March once the ECB gives its blessing, making it one of the only European players so far to attempt a cross-border transaction in the wake of the pandemic. Some CreVal investors have said the 737 million-euro offer is inadequate.

“I think that in the course of the last 20 years, there has not been any cash offer on an Italian bank. We are the first one to do it,” Deputy CEO Xavier Musca told reporters. “I notice there is no counter bid, so I am particularly confident in the final success of the process.”

Amundi SA, Credit Agricole’s investment arm, separately reported its assets under management rose to a record 1.73 trillion euros at the end of 2020, after 14.4 billion euros of inflows in the fourth quarter beat analyst estimates. CEO Yves Perrier is stepping down to become chairman after more than a decade at the helm.

Other fourth-quarter earnings highlights:

• Revenue of 5.25 billion euros; analyst estimate was 5.06 billion euros
• Net income of 124 million euros; analyst estimate was a loss of 188.8 million, after a goodwill charge of 900 million euros
• Corporate and investment banking revenue of 1.15 billion euros; estimate was 1.5 billion euros
• Capital markets and investment banking revenue of 545 millions euros; estimate was 620.7 million euros
• Provisions for loan losses of 538 million euros; estimate was 784.4 million euros
• CET1 capital ratio of 13.1%; estimate was 12.6%

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