Credit Agricole’s Regional Owners to Tighten Grip on Bank

Credit Agricole SA’s regional-bank holders are planning to purchase as much as €1 billion ($1.1 billion) of the lender’s shares as the company reported a surge in profit for the second-quarter.

(Bloomberg) — Credit Agricole SA’s regional-bank holders are planning to purchase as much as €1 billion ($1.1 billion) of the lender’s shares as the company reported a surge in profit for the second-quarter.

The regional lenders would increase their stake to no more than 65% of Credit Agricole, from 60.2% currently, and aim to finalize the transactions by the end of June next year, the 39-member group’s holding entity SAS Rue La Boetie said in a statement Friday.

The purchases would be similar to a €1 billion move that the regional holders announced last November and will look to take advantage of the lender’s shares that are currently priced at nearly half their book value.

The lender’s shares were 4% higher at 9:16 a.m. in Paris.

Credit Agricole’s stock is “very attractive when it comes to its return,” Chief Executive Philippe Brassac said in a call with reporters.

Beating Estimates

Posting earning for the period through June in a separate statement, Credit Agricole said net income rose 25% to €2.04 billion. The figure was above the €1.43 billion that analysts expected in a Bloomberg survey and was supported in part by strong growth in net interest income at its international retail division.

Credit Agricole also announced a deal for a majority stake in Belgian asset and wealth manager Degroof Petercam by the French bank’s wealth management unit, Indosuez Wealth Management. 

Degroof Petercam has about €35 billion under management and generated net income of about €80 million last year, Credit Agricole Deputy Chief Executive Officer Xavier Musca said on the call. The deal would increase the size of Indosuez by about 50%, Brassac said on the same call.

CLdN group, a core shareholder in Degroof Petercam, would retain a stake of around 20% in the business, Indosuez said in a statement.

The deal values Degroof Petercam at €148.03 per share before various potential adjustments and will be followed by a public offer for the Belgian firm’s remaining shares, according to a separate statement. This values the firm at about €1.5 billion.

The transaction would impact Credit Agricole’s CET1 ratio, a key measure of its financial strength, by 30 basis points and is expected to close in 2024, Indosuez said. 

Net Interest Margins

Credit Agricole’s growth for the period was supported by strong gains in net interest margins at its international retail banking unit, which saw its revenue rise 21% to €982 million, above analysts’ estimates.

This more than offset a 5% decrease in revenue at its French retail banking unit that echoed the struggles of domestic peers to get the full benefit of rising interest rates. Increases in the rates on regulated savings have raised lenders cost of funding while mortgage lending rules cap how much they can charge on new loans. 

Still, Credit Agricole fared better than rival Societe Generale SA, which posted a 14% slump in French retail banking revenue Thursday.

Specialized financial services posted a 70% increase in revenue, partly because the unit benefited from the execution of an agreement with car-maker Stellantis NV in leasing and financing.

“All key divisions outperformed,” Keefe, Bruyette & Woods analysts Thomas Hallett and Andrew Stimpson wrote in a note. Credit Agricole posted “a decent set of results despite ongoing pressure in French net interest income.”

Fixed Income

The lender’s fixed-income, commodities and currencies traders defied an industrywide gloom that hit both domestic and Wall Street rivals. 

The unit’s underlying revenue declined only 1.1% in the second quarter, supported by a strong performance in financing activities, including on the primary credit and securitization markets. This compares to a 18% fall at BNP Paribas SA and SocGen and a 13% decline across Wall Street major lenders.

This allowed the bank’s large customers unit, which houses both corporate and investment banking and asset servicing operations, to post revenue of €1.9 billion in the second quarter, down 3% from a year earlier but still above analysts’ estimates.

“We are now in a situation where rates are significantly positive, and this is probably going to last for a certain amount of time,” Chief Financial Officer Jerome Grivet said on Bloomberg TV. “The demand of our customers to engage into hedging operations is going to be structurally better.”

What Bloomberg Intelligence Says:

Credit Agricole’s consensus-busting 2Q report, with asset gathering driving a 16% jump in underlying revenue, and its plans to further expand an initial 60%-stake in Degroof Petercam, demonstrate the bank’s renewed confidence in its profit outlook. The investment bank outshone peers (FICC was down just 2%), while revenue headwinds for its French retail bank this quarter should ease into 2024. Consensus upgrades could follow.

— Philip Richards, BI banking analyst

–With assistance from Dani Burger, Mark Cudmore and Macarena Muñoz.

(Updates with details on La Boetie move, Degroof Petercam deal and shares)

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