Crédit Agricole to Sell Back its Regional Bank Stakes

By Noemie Bisserbe

PARIS--Crédit Agricole SA said it will sell back the 25% holdings it has in the group's regional lenders in a move aimed at easing concerns about its capital strength but which could also dent its earnings prospects.

Crédit Agricole said its regional lenders will pay around EUR18 billion ($20 billion) to buy back their stakes.

The Paris-based lender, France's second-largest listed bank by assets, announced the restructuring plan Wednesday as it reported a 28% jump in fourth-quarter net profit to EUR882 million in the three months to the end of December. Revenue was up 11% at EUR4.29 billion, lifted by a pickup in loan demand.

The move to revise its structure highlights the pressure on European banks to fortify their balance sheets and improve transparency to woo investors, amid volatile markets and continuing pressure from regulators.

"The current environment is such that we can no longer afford to have investors believe, rightly or wrongly, that the group is weak on capital, " said Chief Executive Philippe Brassac. "This allows us to address the issue on capital once and for all," he said.

The French bank had been working for months on a plan to revise its corporate structure, which has for a long time weighed on its valuation, and ease tensions within the bank. Crédit Agricole is 56%-owned by the group's regional retail banks. In turn it controls 25% of these lenders--a structure analysts say is too complex.

The transaction will have a positive impact on the bank's capital buffers. Crédit Agricole's core tier-one ratio, which compares top-quality capital such as equity and retained earnings with risk-weighted assets, would reach over 11%, well above the 9.5% threshold set by regulators, up from 10.7% in December.

The deal will be financed in part by a 10-year loan of EUR11 billion at a 2.15% interest rate by Crédit Agricole to its regional lenders and should be completed this summer, the bank said.

The proposed transaction could, however, impact the bank's earnings growth going forward.

Crédit Agricole's domestic retail lenders contributed EUR236 million to net profit in the fourth quarter, up 14% from a year ago, while the group's corporate and investment bank posted a 78% drop in net profit to EUR50 million.

Mr. Brassac said that the corporate and investment bank's earnings this quarter were in part dented by a one-off loss on a real estate portfolio in Italy, and its risk profile remained low. He said the group had no plans to trim its investment bank further.

Crédit Agricole's large insurance and savings management business, which posted a 17% increase in net profit to EUR462 million this quarter, should also help support growth.

The bank will propose a dividend of EUR0.60 a share on 2015 earnings, compared with EUR0.30 last year.

Write to Noemie Bisserbe at noemie.bisserbe@wsj.com

(END) Dow Jones Newswires

February 17, 2016 01:14 ET (06:14 GMT)

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