(Feb 4): Credit Agricole SA fell short of analysts’ profit estimates for the fourth quarter as investments to revamp its Italian business pushed up costs and it set aside more money for souring loans and other risks.
Operating expenses rose 4.7% to €4.1 billion, above the €3.9 billion analysts had expected, driven by restructuring expenses and the impact of a deposit guarantee fund in Italy. Provisions of €629 million also came in higher than expected, and included money set aside for legal risks from UK car loans and a recovery plan for Italian lender Banca Progetto.
Credit Agricole fell the most in three months as the accumulation of individual hits offset a strong performance at the asset gathering business, underscoring the challenges for chief executive officer Olivier Gavalda as he emphasises growth outside the French lender’s home market. Gavalda last year unveiled a new strategic plan that focuses on markets including Italy, where Credit Agricole is already the largest shareholder in Banco BPM SpA.
The results are “somewhat underwhelming,” KBW analysts Thomas Hallett and Andrew Stimpson wrote in a note. “The provisions miss is unhelpful” and “cost inflation was also higher than expected.”
The shares fell as much as 5% and were 3.1% lower at 9.08am in Paris trading, the second-worst performer in an index of European banks.
“We have very ambitious standalone goals for Credit Agricole Italia,” Gavalda said on a call with reporters.
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The restructuring costs reflect in part efforts to reduce administrative costs at the Italian unit, increasing expertise and the sales force, as well as more digitalisation, Clotilde L’Angevin, deputy general manager in charge of finance, said in an interview on Bloomberg TV. The workforce will be reduced from 12,000 to 11,500 employees as part of the restructuring, Hugues Brasseur, the head of the Italian business, said during a call with reporters.
Italy is Credit Agricole’s most important market after France. The lender has raised its stake in Banco BPM to just above 20% amid a deal wave sweeping its second-largest market. The first consolidation of the stake reduced earnings in the fourth quarter by €607 million, though it should make a recurring contribution of around €100 million per quarter going forward.
“We will see in due course whether or not it is in our interest to increase our stake in Banco BPM,” Gavalda said in reply to questions from reporters, adding that “is not an issue for the Credit Agricole Group at present.” Both Gavalda and his counterpart at Banco BPM have signalled before that they could explore tie-up options between the Italian bank and Credit Agricole’s business in the country.
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Other expenses in the fourth quarter were related to Amundi SA, the asset manager controlled by Credit Agricole. Already on Tuesday, Amundi reported profit that exceeded expectations and presented a share buyback, sending the stock higher. Europe’s largest asset manager said inflows were underpinned by retail and third-party distributors, with demand from Asia also strong.
That helped fuel a better-than-expected performance at Credit Agricole’s asset gathering division, which also includes the insurance and wealth management operations. The French lender’s business with large customers, which houses the advisory and securities unit as well as the business lending to companies, benefited from higher revenue at the corporate and investment bank as well as asset servicing.
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