DEALTALK-Credit Agricole unlikely to pull plug on Cheuvreux

Wed Apr 25, 2012 8:32am EDT

Related Topics

* Management buyout, joint venture among options

* Full shutdown seen unlikely

* 710 jobs at stake, 400 in France

* Latest sign of wider equity brokerage struggles

By Christian Plumb

PARIS, April 25 (Reuters) - The best thing for Credit Agricole may be to put its Cheuvreux brokerage arm out of its misery but that's not likely, leaving France's No. 3 bank with limited options for the loss-making unit.

Cheuvreux lost a potential lifeline last month when China's Citic Securities dropped plans to acquire a 20 percent stake in the unit, instead setting its sights on buying all of the lender's CLSA Asian brokerage.

With the cooperative bank, which is already cutting more than 2,000 jobs in its investment bank, reluctant to fire or reassign Cheuvreux's hundreds of employees, a full shutdown is unlikely, a London-based investment banker and various analysts said.

"That may be the best option but I don't think that's the option they would go for a number of reasons," the London-based banker said, referring to possible moves at the end of a business review expected to last two to three months.

More likely would be a management buyout, a partnership or a move to drastically scale back the brokerage, although such moves could still leave the equity sales and research firm limping toward an uncertain future.

"Look at the kind of money that Cheuvreux has been losing in the past few years," said a London-based banker, speaking on condition of anonymity. "I'm hoping for them that it's not beyond repair, but I'm not sure."

Credit Agricole declined to comment on its plans for Cheuvreux, citing a pre-earnings "blackout period".

Cheuvreux's fate - and that of its 710 employees worldwide - is just the latest conundrum as Credit Agricole looks to refocus on retail banking after a series of misadventures in investment banking.

SOCGEN PARTNERSHIP EYED

"If I were working at Cheuvreux at the moment I'd be extremely nervous about my future," said one London-based analyst speaking on condition of anonymity.

Credit Agricole could cut costs by shuttering some of Cheuvreux's local offices, which exist in locations from Boston to Tokyo according to the bank's web site.

"The issue is that Cheuvreux is loss-making when the markets are weak and breaks even when the markets are good so they have to address that," said KBW analyst Jean-Pierre Lambert. "They have to focus on the profitable activities and weed away the activities that are value destructive."

More drastic options include an outright sale or a merger with another broker, with some analysts pointing to a 2004 decision by Credit Agricole's larger French rival BNP Paribas to partner with independent securities house Exane.

Societe Generale, already Credit Agricole's joint venture partner in the Amundi asset management business and in futures and clearing brokerage Newedge, would be a potential partner, the investment banker said.

A management buyout has also been considered, he said, adding that he was unsure where that option now stands.

Credit Agricole may have weakened Cheuvreux's potential to turn a profit by shuttering its entire equity derivatives business as part of a wider cull of its investment bank aimed at helping the lender meet tougher capital standards.

"That's where the margins are," the London-based analyst said. "You have cash equities to support that. So clearly with (equity derivatives) going, the cash equities side is questionable."

The struggles of the firm, which offers research on European small- and mid-cap companies as well as French ones, are the latest in a broader shakeout among equities brokerages dictated by the challenges of turning a profit.

Credit Agricole does not break out Cheuvreux's results in its earnings, instead including it in a "capital markets and investment banking" business line which reported a fourth-quarter operating loss of 106 million euros ($139 million).

The equity brokerage business was "adversely affected by a general volume decline in both Europe and Asia", the bank said at the time.

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