Credit Agricole Lifts Capital as Investment Banking Slumps

(Bloomberg) --

Credit Agricole SA followed competitor Societe Generale SA in strengthening its capital buffers, even though slower investment banking activity weighed on second-quarter earnings.

Profit at the large clients business that houses the securities unit fell 20% after the bank saw a continued drop in margins in a sluggish market. A decline in overall net income was in line with expectations and Chief Executive Officer Philippe Brassac said the higher CET1 ratio -- a key measure of financial strength -- “further secures” its 50% cash divided policy.

Brassac is betting on corporate banking and asset management to bolster revenue and boost net income after unveiling a new strategic plan in June. The lender -- which met previous key targets ahead of schedule -- is seeking to increase net income to 5 billion euros and boost its return on tangible equity, a key measure of profitability. While that metric declined in the first half, it's still within the bank's target range.

The CEO has reorganized the bank's structure and sold less-strategic holdings over the past four years while pledging to secure more partnerships with other companies. With the lender less dependent than crosstown rivals BNP Paribas SA and Societe Generale SA on trading, he's boosted some targets while rivals have cut theirs. European banks are facing an extended era of low or negative interest rates and ever-rising capital requirements.

The lender posted 5.15 billion euros ($5.7 billion) of revenue, slightly ahead of analyst estimates, after giving out more loans to homeowners and businesses.

Credit Agricole fell as much as 5.9% in Paris trading as signs of an escalating U.S.-China trade war caused shares to drop across Europe. The stock was down 5.7% at 10.31 euros as of 10:04 a.m. The STOXX 600 Index declined as much as 1.9% while competitors BNP Paribas and Societe Generale also both posted declined of more than 4%.

Expenses rose more than 2% in the quarter compared with a year earlier, though they are still within the bank's target range as a percentage of income. Both the French retail business and the asset management business including Amundi boosted the lender's bottom line, which at 1.22 billion euros was in line with analyst estimates for the quarter.

The bank is one of the few in Europe that has also grown through deal-making. In April, it agreed to take over Banco Santander SA's main custody and asset-servicing activities to scale up in a business dominated by U.S. firms. Amundi SA, which reinforced its European leadership after the 3.5 billion-euro purchase of Pioneer Investments from UniCredit SpA in 2017, has said recently that it remains a “natural consolidator in Europe.”

Corporate Clients

The bank is seeking to drive more revenue from large corporate clients in cash management and target more small- and medium-sized businesses. It's also seeking a 20 billion euros increase in yearly net inflows as it targets so-called mass affluent customers.

French rival Societe Generale saw its shares soar on Thursday after it boosted its CET1 ratio, though by a much greater magnitude than at Credit Agricole. Still, the increase may signal to investors that Credit Agricole could boost payouts as it seeks to boost net income by 600 million euros over the next three years.

Credit Agricole also said it signed partnership agreements in the quarter with Italy's Banco BPM and Spain's Abanca as part of its 2022 plan.

--With assistance from Gaspard Sebag.

To contact the reporter on this story: Dale Crofts in Zurich at dcrofts@bloomberg.net

To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Dale Crofts, Ross Larsen

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