Crédit Agricole's Unbundling of Regional Banks May Prove Well-Timed

By Jon Sindreu

As Crédit Agricole SA sells its stake in regional lenders, analysts are weighing the loss for the French bank of a recent profit engine balanced against a welcome injection of capital.

But a quick look at recent stock performance suggests analysts shouldn't bother: It is a smart move.

Since 2007, and the start of the credit crisis, shares in the world's regional banks have outperformed their bigger brethren when measured by their total return--which measures both the change in share price and dividend payouts.

Not so in France, where the sector has underperformed both its global peers, major French banks and bigger banks globally.

Total returns for global regional banks, for instance, were back above precrisis levels in mid-2015 and have stayed above that level for much of the time since.

Stocks for regional French banks have yet to approach those levels. They have lost about 60% since 2007, even after dividends.

Even some of their neighbors have bettered that. Take German regional lenders, which are controlled by local stakeholders and whose stock is 28% below where it was precrisis, on a total return basis.

Crédit Agricole's decision to unbundle itself was timely. The size and structure of banks remain a hot topic, and on Tuesday, Federal Reserve Bank of Minneapolis President Neel Kashkari called for a breakup of big banks.

Perhaps also, the complexity of French banks, where regional and major banks often hold stakes in each other, have held the performance of both sectors back.

There is precedent. In 2013, French corporate and investment bank Natixis sold the 20% stake it held in a group of regional lenders. Its share price has since outperformed many of its peers, including Crédit Agricole, Société Générale and BNP Paribas SA.

Write to Jon Sindreu at jon.sindreu@wsj.com

(END) Dow Jones Newswires

February 17, 2016 15:04 ET (20:04 GMT)

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