French bank Credit Agricole, among the most exposed to Italian debt, said it was preparing for "difficult" times ahead after third-quarter profits slumped on the back of Greek sovereign debt losses. The bank, which is majority owned by a group of regional banking co-operatives, posted a 65 percent slump in third-quarter net profit - double what analysts had expected.
Credit Agricole is overhauling itself under new management after an ill-fated drive to grow trading and investment-banking activities was cut short by the 2008 financial crisis.
It has also announced sweeping asset sales in line with peers to improve its funding profile and beef up capital. With the eurozone debt crisis now spreading from Greece to Italy - where Credit Agricole owns a local bank, Cariparma - the French bank's executives were reluctant to give more detail on the outlook for profits and solvency strength.
"We will not talk about our restructuring plan," Credit Agricole Chief Financial Officer Bernard Delpit told reporters on a conference call. "We are still working on it."
Italy has moved to the centre of the eurozone crisis after borrowing costs for the euro zone's third largest economy jumped above the levels that forced Ireland and Greece to seek bailouts. A euro zone official said the bloc was not making any plans to bail out Italy, which is deemed too big to save with the 440-billion-euro European Financial Stability Facility.
ITALY FEARS
French banks have the biggest international exposure to Italy, according to Bank for International Settlements data at end-June. France said on November 10 it had extended a short-selling ban on bank stocks including Credit Agricole.
Although Credit Agricole's parent group cut its exposure to peripheral euro zone sovereign debt by 27 percent between June and October, its Italy holdings in its banking book at end-September remain among the highest of the French banks at 6.7 billion euros. Asked whether the bank could also suffer rising loan losses from its local subsidiary's exposure to the broader Italian economy, Chief Executive Jean-Paul Chifflet told journalists: "I think that the Italian economy should prove resilient."
Chifflet, who took the reins of the bank last year, said it had not made a decision yet on whether to cut its dividend.
Credit Agricole could not give its forecast of what its core Tier 1 ratio - the key measure of a bank's financial strength - would be at the beginning of 2013, he added. At end-September it stood at 8.8 percent.
"We're preparing ourselves for difficult quarters to come...The environment remains delicate and complex," Chifflet said.
PROFIT HIT
Credit Agricole's third-quarter net profit fell to 258 million euros, including a series of one-off charges, from 742 million a year earlier. This was below analyst forecasts for 605 million euros in a Reuters poll. Revenue rose 6.2 percent to 5.3 billion euros, compared with the poll average of 4.96 billion. The bank said it booked a 637 million-euro charge ($865.4 million) after writing down its Greek holdings by 60 percent, in line with Societe Generale and BNP Paribas.
Earnings were also hit by losses at Credit Agricole's local Greek subsidiary Emporiki, which is not expected to return to profit until 2013-2014. "Not such a bad set of results...but this doesn't really change the problems at Credit Agricole," said ING analyst Tom van Kempen. "The Greek situation seems to be worsening, non-performing loans are continuing to increase and loan-loss provisions have increased pretty significantly over the quarter."
Credit Agricole's investment bank has shuttered risky activities and is being shrunk further as the bank returns to its retail banking roots.