Credit Agricole Q2 profit surprises as bad loan provisions fall

Paris

CREDIT Agricole SA's profit came in above expectations as it joined European peers in posting lower provisions to reflect the improving economy.

The Paris-based lender said net income jumped to 1.97 billion euros (S$3.2 billion) in the second quarter, more than double the same period last year and above the 1.2 billion euros anticipated by analysts polled by Bloomberg. Provisions to cover potentially souring loans fell 67 per cent to 279 million euros, which was also far better than estimates.

The economic signals and forecasts "go rather in the way of an improvement, which would not lead to an increase in cost of risk, and this is why we are very confident", said deputy chief executive officer Xavier Musca in a call with reporters.

After setting aside billions of euros when the pandemic shuttered swathes of the economy last year, European lenders are showing optimism that vaccinations can stoke a recovery, translating into falling provisions and surging profits. Rival Societe Generale SA's profits beat estimates earlier this week as it lowered its guidance on full-year provisions.

Chief financial officer Jerome Grivet said that the optimism remains even as the Delta variant of the coronavirus is causing infections to rise in many European countries.

"As long as the pandemic is not fully under control we will continue to have some measures that will support the economy globally and that will benefit banks specifically," Mr Grivet said in an interview on Bloomberg TV on Thursday. "So I'm not very worried specifically by this Delta variant."

Credit Agricole's net income also got a 258 million-euro lift from an accounting benefit known as badwill, linked to the recent acquisition of Italy's Credito Valtellinese SpA. This boost gave the group its highest quarterly net income since 2007.

The bank also gave details on the buyback plan it announced in February, saying it would spend up to 500 million euros on shares in the fourth quarter.

It was a more muted quarter at the corporate and investment bank, with revenue falling 8.5 per cent to 1.56 billion euros, slightly worse than estimates. Revenue from the trading of fixed income products fell 28 per cent compared to a buoyant quarter a year ago, mirroring the trend at rival BNP Paribas SA and many US banks.

The group depends less on its markets unit than peers, meaning it was less affected by the trading meltdown induced by the pandemic last year. However, this leaves the bank reliant on consumer margins that have proved weak in recent years, leading chief executive officer Philippe Brassac to cut jobs in several of its units, downsize its domestic retail banking unit LCL, while seeking to expand its retail footprint in Italy.

The bank's international retail operations, a key element of its expansion strategy, saw revenue increase by a quarter to 801 million euros, better than estimates.

Amundi SA, Credit Agricole's investment arm, saw its net income double over the last quarter after a one-time tax gain, as buoyant equity markets fuelled a surge in the firm's performance fees. The firm saw assets under management rise to a record 1.79 trillion euros at the end of June, as investors poured in 7.2 billion euros.

Credit Agricole's CET1 ratio, a key measure of its financial strength, was down 0.1 percentage point at 12.6 per cent at end-June. In last week's stress tests published by the European Banking Authority, the bank emerged as the strongest listed lender in France. BLOOMBERG