Credit Agricole upbeat on funding, Q2 beats forecast

PARIS Thu Aug 25, 2011 5:50am EDT

PARIS (Reuters) - French bank Credit Agricole (CAGR.PA) struck a confident tone on its financial firepower in the face of market "irrationality" about funding fears, lifting its battered stock by almost 7 percent.

Bank stocks across Europe were buoyed by the comments from France's No. 3 bank by market value, which said dollar funding from the Middle East and Asia and its own available resources meant it could withstand a complete disappearance of funding from U.S. money markets.

"(There is) a lot of volatility, a lot of nervousness...A lot of irrationality linked to perceptions of catastrophic situations," Chief Executive Jean-Paul Chifflet said on a conference call to present second-quarter results.

Quarterly earnings fell 10.6 percent, weighed by well-flagged one-off charges and losses at Greek unit Emporiki CBGr.AT, but analysts said the results were better than expected thanks to assets on the bank's balance sheet that benefit from inflation.

"I think this is going to be taken positively by the market...It's sort of implying that there are no imminent liquidity issues for Credit Agricole," MF Global analyst Shailesh Raikundlia said.

Shares of Credit Agricole were up 6 percent, at 6.59 euros, at 4:57 a.m. EDT, outperforming a 1.8 percent rise for the STOXX 600 Europe banks index .SX7P.

Bank stocks across Europe have been badly battered in recent weeks by fears that access to U.S. money-market funding is drying up. Credit Agricole's stock is still down 36 percent since the end of June.

Credit Agricole said its access to such funding had been roughly halved as a result of market jitters, to around 25 billion euros. The bank said it was however "well-positioned" in terms of liquidity and had alternatives available in markets like Asia and the Middle East.

"The residual refinancing of dollars from money-market funds has been reduced...(But) its complete disappearance would not be particularly problematic for us," Deputy Chief Executive Michel Mathieu said.

GREECE HIT

Credit Agricole said second-quarter net profit fell to 339 million euros, beating expectations of 193.3 million according to a Reuters poll of nine analysts.

The bank warned last month it would take a hit of up to 850 million euros linked to losses and one-off charges at Greek unit Emporiki as well as a charge linked to Greece's European rescue package.

The rescue charge involved taking a 202 million euro pre-tax writedown on its portfolio of Greek sovereign bonds, out of a total exposure of 329 million at end-June.

Analysts said the Greece numbers were in line with expectations but that assets pegged to inflation boosted numbers at the bank's corporate center, offsetting a slightly weaker-than-expected performance in retail banking.

"We are negatively surprised by the retail bank's performance in France...But we see positive trends in deposit growth," Natixis analyst Alex Koagne said in a research note.

"This morning's release will likely support the performance of the stock as it shows the group's healthy operational profile, its improvement of solvency and its favorable liquidity position ."

While Credit Agricole saw growth in its healthy domestic market, its international retail operations posted a loss of 695 million euros. The bank took a goodwill charge on Emporiki of 379 million and a 148 million-euro charge on deferred tax assets held by the unit.

Chifflet denied a report in French publication "La Lettre de l'Expansion" that said it would recapitalize its units in Southern Europe, which would include Italy's Cariparma, but said it would reinforce Emporiki if necessary.

"We will do what needs to be done in terms of capital (for Emporiki) in the months and years to come," he said.

Chifflet, who took over as CEO last year, also ruled out a rights issue for the group, which is majority owned by a network of cooperative banks, in the face of market turbulence.

Chifflet and his management team are trying to bring Credit Agricole back to its retail banking roots after misfires in corporate and investment banking and losses in Greece. Chief Financial Officer Bertrand Badre is the latest casualty of the shake-up; ex-Banque Postale executive Bernard Delpit is to replace him soon.

The bank said Thursday it was sticking to its long-term targets, which include hitting 6 to 7 billion euros in net profit by 2014.

(Reporting by Lionel Laurent; Editing by Christian Plumb and David Cowell)