Credit Agricole SA reported a 71 percent drop in first-quarter profit, hurt by a decline in consumer lending margins and trading revenue as the bank began a reorganisation to streamline its capital structure.
Net income declined to €227 million ($259 million) from €784 million a year earlier, Credit Agricole, based near Paris, said in a statement on Thursday. That’s in line with the €220 million average estimate of five analysts. The net cost of the revamp was 399 million euros.
Europe’s largest banks have been hurt by record-low interest rates squeezing income from lending as turbulent financial markets deterred clients from trading. Credit Agricole, led by Chief Executive Officer Philippe Brassac, announced in February that it would sell stakes in about three-dozen regional banks in an 18 billion-euro transaction to help simplify its structure.
The first quarter was “a weaker than expected set of results,” Federico Salerno, a London-based analyst at MainFirst Bank AG with an outperform recommendation on the shares, said in a note. “Given the amount of derisking and deleveraging carried out in the past several years, this may come as a surprise to some.”
Credit Agricole slipped 3.3 percent to €8.80 in Paris. The shares have dropped about 19 percent this year, hurt by a market selloff. BNP Paribas SA lost 16 percent, while Societe Generale SA declined 23 percent.
Credit Agricole said revenue at LCL, its French retail-banking unit, was “strongly impacted” in the quarter by a decline in net interest margins – the gap between what it pays for funding and generates from lending. Profit at LCL fell 32 percent to 85 million euros, while almost doubling to 53 million euros at the international retail banking unit.
Global equity markets had their rockiest start of the year since 2009, weighing on securities revenue at a time of record-low interest rates, tougher regulatory scrutiny and risk aversion weighing on trading.
At Credit Agricole, a slump in debt trading contributed to a 51 percent profit drop at the unit that includes the investment bank. While corporate and investment-banking businesses suffered in the first two months of the year, March and April were of “better quality,” Chief Financial Officer Jerome Grivet told journalists.
Provisions for credit losses at the large customers unit — which includes the corporate and investment bank – rose 51 percent to 122 million euros in the first quarter, partly because of money set aside for energy-related financing.
Credit Agricole’s exposure to oil and gas lending was $25.9 billion at the end of March, down 8 percent from the end of the year, with 82 percent to investment-grade counterparts, according to slides.
European banks are also squeezed by by record low interest rates. Credit Agricole started charging institutional clients for deposits, with the business facing “big pressure,” Grivet said. The lender hasn’t yet decided whether to pass it on to corporate customers, he added.
Profit from savings activities, including asset manager Amundi SA, private banking and insurance, rose 10 percent to 379 million euros in the first quarter. The wealth-management business, which had 148.3 billion euros in assets under management by the end of March, was “penalised by the market environment resulting in a wait-and-see attitude among customers,” the lender said.
Credit Agricole, which has the largest market share in French consumer banking, is targeting a return on tangible equity, a measure of profitability, of more than 10 percent by 2019.
The lender said in March that it plans to achieve 900 million euros in annual gross cost savings as it streamlines some businesses and invests in others.
The bank’s common equity Tier 1 ratio – a measure of financial strength -increased to 10.8 percent at the end of March from 10.7 percent at the end of 2015.
Credit Agricole, sometimes called the “Green Bank” because of its historical ties to farming, is a French network of cooperative and mutual banks comprising the 39 Credit Agricole Regional Banks. In 1990, it became an international full-service banking group.
It is listed through its holding company, Credit Agricole SA, on Euronext Paris’ first market and is part of the CAC 40 stock market index. In 2013, the Credit Agricole Group reported revenues of €26.4 billion.
It was also the title sponsor of the Credit Agricole professional road cycling team from 1998 to 2008. The group’s acquisitions enabled it to strengthen its leadership in French retail banking, expand its position in corporate and investment banking and build up its international network of branches and subsidiaries. By now, the group was the number-one bank in France with 28 percent of the domestic market, the global number-two by revenues and number-ten by profits,
according to Fortune magazine.