Weakness in investment banking and retail operations are to blame for a sharp decline in first-quarter net profits, Crédit Agricole has reported.
The financial institution, France’s second-largest lender by assets, revealed that net income had fallen €227m, or 71 per cent, in the first three months of the year. The fall was exacerbated by moves to optimise the group’s balance sheet and reduce its future cost of debt.
While all European banks have suffered from the turbulent markets in the first quarter, a drop in debt trading contributed to a 51 per cent profit drop to €169m at Crédit Agricole’s investment banking operation.
Revenue at LCL, the group’s French retail banking unit, suffered as low interest rates have driven down net interest margins — the difference between how much a lender pays to borrow and what they can charge for providing loans.
The company said that during the past two years it has faced renegotiations and early repayments on almost half of its home loans portfolio. “In the very low interest rate environment prevailing since 2014, the wave of renegotiations and early repayments has been exceptionally high,” it reported.
Provisions for credit losses at its large customers division rose 51 per cent to €122m. One factor driving the increase was additional money being set aside for the energy sector, which is suffering as a result of a sharp fall in oil prices. The company said that pressure on the commodity’s price had also affected its trade finance business.
The biggest drag on the results in the first quarter, however, was a €448m charge for a “balance sheet optimisation operation” to “reduce the future cost of debt” taken as part of a wider reorganisation announced earlier this year.
Crédit Agricole struck a €18bn deal in February to sell stakes in its network of regional banks: a move designed to simplify its complex structure, boost capital and allow the lender to finance cash dividends.
Under the plan regional lenders will buy back the 25 per cent stakes currently owned by central listed body CASA for €18bn. The 39 regional mutual banks would then simply own 56 per cent of CASA.
The banking group has long comprised a network of 39 regional French mutuals which own, through a holding company, a 56 per cent stake in CASA. In turn, the group owns a 25 per cent stake in the regional companies.
Investors viewed this as overly convoluted and their concerns weighed on the share price. Many questioned whether promises by the regional banks to support the listed entity in a time of crisis were as solid as the institution asserted.
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