Credit Agricole Provisions Surge as it Girds for Bad Loans

(Bloomberg) -- Credit Agricole SA is setting aside almost three times the amount it booked a year ago to cover souring loans because of the impact of the coronavirus, the latest lender to try and estimate the damage to its balance sheet from the outbreak.

Provisions in the first three months of the year jumped to 621 million euros ($673 million) from 225 million euros a year earlier to take account of the worsening economic environment, the bank said in a statement on Wednesday. The lender expressed optimism it can navigate the crisis after posting mixed results, which included a better-than-expected top line performance and a drop in net income.

Credit Agricole is more diversified and less dependent than rivals BNP Paribas SA and Societe Generale SA on trading, and it has been able to turn to acquisitions to support growth. The bank avoided the dividend-related equity trading hits that hurt its larger rivals and said revenue at its large customer segment, which includes its investment banking activities, gained more than 8%, in part driven by the bank's fixed income business.

“We are really focused on financing needs of our big corporate clients,” Chief Financial Officer Jerome Grivet said on a conference call. “It's an activity that uses our balance sheet, and we are sometimes criticized for that. It's an activity that when it's done well, is much less volatile, and exposes us less than others to market dislocations.”

The shares fluctuated between gains and losses in early Paris trading and were down 0.6% at 7.12 euros as of 9:12 a.m. local time.

The bank said it allowed a surge in the use of credit lines at the end of March as large clients rushed to secure their financing needs when the extent of the crisis became apparent. The lender allowed the drawing down of facilities at a rate of 32%, up from 18% at the end of February. As of April 23, 10.6 billion euros had been withdrawn from existing credit lines, with more than 70% of that converted into deposits.

Other first earnings highlights:

Revenue of 5.2 billion euros vs estimates for 5 billion euros
Net income of 638 million euros vs estimates of 730 million euros
Bank added 86,000 professional and retail bank customers
CET1 ratio declines 0.7 percentage points to 11.4%

Brassac has been betting on corporate banking and asset management to offset the impact of low or negative interest rates, a weak consumer market and rising capital requirements. The bank in December wrote down the value of its French retail banking division LCL by about 600 million euros.

Credit Agricole's giant asset manager, Amundi SA, saw clients pull 3.2 billion euros in the first quarter. The business has grown into Europe's largest with the help of acquisitions, making it a model for rivals seeking to consolidate.

Amundi Investors Pull $3.5 Billion Amid Virus Market Turmoil

Brassac has reorganized Credit Agricole's structure and sold less-strategic holdings over the past years while seeking partnerships with other companies. The CEO in June pledged to boost net income by more than 600 million euros over three years and drive down costs, after meeting previous key targets ahead of schedule. The lender affirmed those targets in December, when it announced the goodwill charge at LCL.