Credit Agricole prepares for worst on Greece

PARIS Fri May 11, 2012 6:12am EDT

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PARIS (Reuters) - French bank Credit Agricole (CAGR.PA) is preparing for all possible outcomes to the crisis in Greece, including its exit from the euro zone, after $1.2 billion of charges at its business there led to a plunge in quarterly profit.

Banks across Europe have been slashing the value of assets in Greece following an international deal to reduce its debts, but fear there could be more to come as the country wavers over implementing the austerity drive demanded by its rescuers.

Credit Agricole chief executive Jean-Paul Chifflet said on Friday the bank had teams working to prepare for outcomes including a possible Greek exit from the euro zone, even if it still regarded that as a less probable scenario.

"We have been working for several quarters on this concern and have formed a close-knit team to examine it," he said, while declining to give further details.

France's No.3 bank took 940 million euros ($1.2 billion) in Greece-related write-downs, the latest blow from its ill-fated acquisition of its Emporiki business there.

Credit Agricole shares were down 0.3 percent at 0958 GMT, trimming earlier losses of up to 4 percent and outperforming the European sector, which was 1.3 percent lower. Concern about Greece has contributed to a 20 percent drop in the bank's shares this year, compared with a flat European sector .SX7P.

"Considering the news from Greece, the group's exposure to Emporiki remains a factor of major concern," said Natixis analyst Alex Koagne. "Nevertheless, the performance of its core business was solid for the quarter. Elsewhere, the deleveraging plan made a fair amount of progress, which is good news."

The global bank with roots in rural France said in March that Emporiki, a drag on profits since its purchase in 2006, would have to take new hits on loans to state-controlled entities as part of the 130 billion-euro international bailout of Greece.

Credit Agricole took a 567 million-euro charge for Emporiki and an additional 373 million for the impact of the Greek private sector bailout and accompanying debt forgiveness on its own accounts.

The bank's net funding to Emporiki fell by 900 million euros as it succeeded in shifting some liability to the European Central Bank, but it still remains at a hefty 4.6 billion.

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"It's very difficult for everyone to put down a number on potential losses if Greece is going to leave the euro zone," said another analyst speaking on condition of anonymity.

"If they don't leave the euro zone it's a disaster as well, but one they can manage over time."

Credit Agricole, which has been slimming down its investment bank to refocus on its network of regional cooperative banks, also took a 224 million-euro charge related to its ongoing plan to cut liquidity needs and risk-weighted assets.

First-quarter net profit dropped 75 percent to 252 million euros, lagging the average estimate of 623 million in a Thomson Reuters I/B/E/S analyst poll.

Group revenue rose 2.3 percent to 5.43 billion euros, beating the poll average of 5.05 billion.

Credit Agricole's core Tier 1 ratio, a key measure of financial strength, stood at 9.4 percent at the end of the quarter, up from 8.6 percent at the end of 2011.

Credit Agricole, which is cutting 2,350 jobs in a cull at its investment bank as part of a wider plan to lower its funding needs, said talks are continuing on the sale of its Asian CLSA brokerage unit to China's Citic Securities (600030.SS).

As for Cheuvreux, the European brokerage which Citic had initially contemplated buying a 20 percent stake in, the bank is now mulling all possible options for the unit, Chifflet said. A final decision on Cheuvreux's destiny is another month or so away, he added.

As of the end of April, Credit Agricole said it had achieved 70 percent of targeted reductions in liquidity requirements.

Like larger rivals BNP Paribas (BNPP.PA) and Societe Generale (SOGN.PA), Credit Agricole has been scrambling to shrink its balance sheet amid a funding drought and as tougher capital requirements loom.

($1 = 0.7716 euro)

(Editing by James Regan and Mark Potter)

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