Crédit Agricole to Sell Back its Regional Bank Stakes -- 3rd Update
February 17 2016 - 7:02AM
Dow Jones News
By Noemie Bisserbe
PARIS--Crédit Agricole SA said it would sell back the 25% stake
it holds in the group's regional lenders in a move aimed at easing
concerns about its capital strength but that could also dent its
earnings prospects.
The announcement lifted the French bank's shares. By midmorning
Wednesday they were up over 11%, making Crédit Agricole the leading
gainer among financial stocks on the Stoxx Europe 600 banks
index.
Crédit Agricole said its regional lenders will pay around EUR18
billion ($20 billion) to buy back their shares.
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 demands
from regulators.
European banking shares have suffered sharp losses since the
beginning of the year amid concerns that global central banks now
struggling to boost growth will worsen an already tough environment
for lenders.
"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, " Chief Executive Philippe Brassac told reporters.
"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 to 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. Crédit
Agricole will also pay back EUR5 billion in cash deposits to the
regional lenders to unwind an intragroup guarantee mechanism.
The proposed transaction will, however, dilute the bank's
earnings per share by around 9%.
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.
Mr. Brassac said Crédit Agricole will target a return on
tangible equity--a measure of profitability--of more than 10% over
coming years. The bank previously said it targeted a return on
tangible equity of 12% in 2016, but the sale of its stake in the
regional banks, higher taxes and capital ratio targets could weigh
on earnings.
The bank will detail its medium-term strategic plan at a
presentation to investors on March 9.
It proposed 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 06:47 ET (11:47 GMT)
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