Argentine echoes for Credit Agricole in Greece

Sun Jun 3, 2012 7:00pm EDT

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* Argentina pullout could serve as model for Greece

* Quick exit could cap liabilities

* Bank could 'reassess its current intent' on Emporiki

* Regulatory backlash risked in other foreign markets

By Christian Plumb

PARIS, June 4 (Reuters) - Everything looked normal at Credit Agricole's Argentine banks on a May Friday a decade ago - as normal as could be expected in a country grappling with a banking crisis after defaulting on its debts.

There were rumours of trouble afoot but that was hardly surprising when panicky customers had been emptying cash machines and lining up at branches to cash their paychecks. Regulators insisted nothing was amiss.

By Monday morning, Credit Agricole had fled. All three of the French bank's local units had been nationalised and their 353 branches temporarily shuttered.

That is the cautionary tale of Credit Agricole's sudden pullout from Argentina, where its three banks controlled about 6 percent of the market.

The question analysts and investors now ask is whether Credit Agricole, Europe's No. 4 bank by assets, could do the same with Emporiki, Greece's sixth largest bank.

"You can imagine a situation where there's political instability in Greece, with outflows of deposits and possibly disruption of law and order," said KBW analyst Jean-Pierre Lambert. "Each bank has a different threshhold for suffering financial losses or risks but at some point it becomes rational to say 'that's it'."

The parallels with Greece look compelling but the financial impact would be on a different scale. The Argentina exit cost Credit Agricole 106 million euros ($131.06 million), Greece could be five billion, leaving a big dent in the bank's capital.

A decision to walk away from Emporiki would also be much trickier politically against a backdrop of Europe's efforts to keep Greece in the euro zone.

Philippe Brassac, head of the federation of cooperative lenders that controls the bank, was asked about an Argentine-style pullout by Le Figaro newspaper. He said the bank could not "rule out any hypothesis in preserving our interests."

Credit Agricole declined to comment.

PAVING THE WAY?

The bank, which has already poured some 6 billion euros ($7.44 billion) into Emporiki since buying it in 2006, has cut its exposure to the Greek lender to 5.2 billion euros from more than 11 billion a year ago.

A 5 billion euro writedown would be a massive blow to Credit Agricole, whose current market capitalisation is only 7.3 billion, almost certainly forcing it to raise capital.

But cutting Emporiki loose would at least allow Credit Agricole to cap its liabilities in terms of funding the Greek unit as well as any equity it still has in the bank. A quick retreat from Greece could also prevent fallout from a potential Greek euro zone exit such as a drachma devaluation and further loan writedowns.

There are some signs that Credit Agricole is already mapping out the exit route.

Emporiki said in its annual accounts earlier this month that the potential for further economic and political deterioration in Greece "may cause Credit Agricole SA to reassess its current intent of supporting the Bank and its overall strategy, including the provision of liquidity and capital support."

Credit Agricole has already halved capital invested in Emporiki - whose deposits do not cover its loans - to 600 million euros from 1.3 billion at the end of the year. This is only a fraction of Emporiki's 18.8 billion balance sheet.

"I can't see them in any rush to put more money in at the moment," said a London-based analyst speaking on condition of anonymity. The analyst said Emporiki's core Tier 1 ratio - a measure of financial health - was about 3 percent "which is clearly not adequate."

Credit Agricole has tried to get Greece to provide Emporiki with liquidity, something the country's domestic banks have already been given via the central bank. The French bank renewed its request recently which could also be a sign it is looking for an exit route.

REPUTATIONAL DAMAGE

In Argentina, the final straw came in May 2002 when it became clear that Credit Agricole would have to inject fresh funds into its Banco Suquia, Banco Bisel and Banco de Entre Rios units. The French bank refused, having already taken a 325 million euro charge for Argentina the year before.

A spokeswoman for the bank, which had gone public in 2001, said at the time it could no longer "carry out our activities in reasonable conditions" in Argentina.

The Argentine exit drew howls of protest from local politicians and triggered at least one lawsuit from depositors - which was ultimately thrown out by the French courts. But the reputational damage to Credit Agricole was limited.

A Greek pullout would be much more dramatic. It would infuriate regulators in Athens and would not play well in markets from Italy to Egypt where Credit Agricole has a strong presence.

The Banque de France, the regulator that really counts for Credit Agricole, has insisted a Greek exit for Credit Agricole is off the table. Although this could change if there is a broader acceptance across the European Union of the inevitability of a Greek withdrawal from the euro zone.

"If France and Germany decide to wash their hands of (Greece), the bank could say I'm not doing anything else than what the government is doing," said one London-based investment banker.

'CUTTING AND RUNNING'

Credit Agricole, founded 117 years ago to provide loans to French farmers, has always been cautious about its foreign adventures.

After the Argentina experience, said one Paris-based banking source, the bank "was for a long time viewed as one that is capable of cutting and running instead of trying to weather a storm."

"The reason is the company's lack of international culture," he added. "They don't have real experience abroad...So even though nothing's certain for Greece, it's happened before and there's no reason to imagine current management has the kind of profile that would brake this kind of behaviour."

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