TEXT-Fitch: Credit Agricole Q4 results ratings neutral
Feb 21 - Fitch Ratings says that Credit Agricole's ('A+'/Negative/'a') Q412 earnings release did not provide information that would prompt any immediate rating action. Operating profit for the quarter (EUR1.4bn as calculated by Fitch) was down by over 20% on Q312 (EUR1.8bn), but was much higher than in Q411 (EUR0.2bn). However, Q4 is usually the lowest of the year, especially for the Corporate and Investment Banking (CIB) business. Moreover, Q412 results show continued progress in enhancing the bank's capital and funding profile. Fitch derives operating profit, its measure of underlying earnings, after adjusting for items such as revaluation of own debt (a loss of EUR837m in Q412 as spreads came in) and impairment of goodwill (EUR2.8bn). Therefore, the bank is posting a very large net loss (EUR3.4bn in Q412) despite making acceptable operating profit. The goodwill impairment charges, which were announced on 1 February 2013, were significant and reflect the consumer finance activity (EUR921m largely related to Italian subsidiaries), international retail banking (EUR923m also largely related to Italian subsidiaries) and CIB (EUR834m, of which almost half related to the brokerage subsidiary Newedge). Fitch understands that these impairments are part of a clean-up exercise and relate to past acquisitions, but they also indicate that future earnings from these businesses will be lower than originally planned. Nevertheless, domestic retail banking, by far the bank's main business line, generated very stable quarter-on-quarter and year-on-year operating profit (EUR1.4bn in Q412). This compares well with other domestic peers that suffered from some contraction in operating profit from this business in the quarter. Credit Agricole continued to grow both lending and deposit volumes, while keeping loan impairment charges under control despite the difficult economic environment in France. Fitch does not expect any material rise in loan impairment charges in the coming quarters. Fitch considers Credit Agricole's capital ratios adequate. Its pro-forma Basel 2.5 core Tier 1 regulatory capital ratio taking into account of the sale of its Greek banking subsidiary rose to 11.8% at end-2012 and its pro-forma fully loaded Basel III common equity Tier 1 ratio rose to 9.3%. This is essentially a result of deleveraging. Credit Agricole's Fitch core capital ratio is lower than the fully loaded Basel III ratio due to the full deduction of the net asset value of the insurance subsidiary from Fitch core capital. The bank will not pay dividends for the second year in a row, unlike the other major French banks. The bank's funding profile improved throughout 2012. Its liquidity buffer amounted to EUR230bn at end-2012 (EUR201bn at end-September 2012) and more than covers the bank's one year short-term wholesale funding (EUR171bn, including EUR34bn of repos). However, Fitch views the quality of this liquidity buffer as weaker than for certain other large French banks. Deposits with central banks represented 23% of the liquidity buffer at end-2012. Additional information is available at www.fitchratings.com.
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