Credit Agricole reported a huge EUR 2,852 million loss for the third quarter on a number of unusual items, most notably a EUR 1,017 million non-cash own-debt loss and a EUR 1,765 million loss on the soon-to-be disposed Emporiki. On a management-provided underlying basis, the bank earned EUR 716 million in the third quarter, implying an uninspiring 6.5% return on equity.
While the bank built capital during the quarter and core Tier 1 rose 20 basis points sequentially to 9.8% on a pro forma basis after adjusting for the sale of Emporiki, its underlying tangible common equity ratio, already among the worst in Europe, fell 23 basis points to 1.73% .
Credit Agricole’s operating units showed signs of the continued stress on European economies. Lending at the French regional banks grew only 1.3% year over year, and operating income fell 1% as operating expenses grew, largely as a result of new taxes. Results were similar at LCL, where revenue grew 2.7% year over year but operating income fell 7.5% as new taxes became effective and the benefit of loan-loss provision write-backs faded.
Corporate and investment banking results included a large noncash own-debt charge, but on an underlying basis, the results showed the impact of a more favorable environment. Structured finance revenue was up 10% over the trailing quarter and fixed-income trading was up 44% over the trailing quarter and 76% over the year-ago quarter, as the bank, like many others, benefited from central bank quantitative easing. Despite this tailwind, which is likely to fade, Credit Agricole failed to come even close to earning its 12% return on equity on an underlying basis during the quarter, and we see little reason to expect significantly improved performance in the near term.
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