Credit Agricole writedown raises fresh Calyon concerns
PARIS (Reuters) - An estimated 2.5 billion euro ($3.59 billion) writedown at French bank Credit Agricole raised fresh concerns among analysts on Friday over Agricole's risk management and investment banking arm.
"This announcement affirms previous concerns we held over risk management at Credit Agricole," investment bank Keefe, Bruyette & Woods Ltd said in a research note.
France's biggest retail bank said late on Thursday the writedown related to super-senior collateralized debt obligations and took into account a decision by ratings agency Standard & Poor's to cut to junk status the rating on bond insurer ACA Financial Guaranty Corp., a unit of ACA Capital Holdings.
Credit Agricole added that its Calyon investment bank would have "negative results" for 2007. Third-quarter group net profit already fell 16.8 percent thanks to trading losses at Calyon.
CM-CIC Securities estimated Calyon's annual loss at 400 million euros, while JP Morgan put it at 154 million.
"Doubts will remain unless the management comes up with clearer communication," CM-CIC Securities said in a research note, adding "tensions could arise" between parent and unit.
BAD NEWS PRICED IN
Credit Agricole's update followed similarly weak results from Wall Street banks hit by the credit crisis, which was triggered by losses on risky U.S. mortgage loans.
Credit Agricole shares fell as much as 2.9 percent to an intraday low of 22.20 euros, but were up 0.3 percent at 22.94 euros in mid-morning trade.
Analysts at ING said much of the bad news had already been factored into the Agricole share price.
According to Reuters Estimates, Credit Agricole shares are trading on a 2008 price to earnings (PE) multiple of around 7.4, a discount to the average PE of around 9 for the DJ Stoxx European bank sector.
"We believe that it is already priced in. We also believe that the risk for additional writedowns is now limited. And we understand that the strong capital ratios, and the strong liquidity at Credit Agricole Group should limit the risk of new concerns," added ING.
Agricole's capital position is helped by its core French retail bank business, often regarded as a cash cow.
On Thursday, Agricole said the writedown would not impact its Tier 1 ratio and would not lead to a 2007 dividend cut.
ING kept a "buy" rating on Agricole, as did CM-CIC Securities. JP Morgan kept an "overweight" rating on Agricole.
However, Keefe, Bruyette & Woods Ltd said Agricole's writedown might prompt rival banks to take similar action on their collateralized debt obligation (CDO) exposure.
"This disclosure may prompt other banks to increase the writedowns taken on their CDO portfolio or counterparty risks, in our view. We believe SocGen, Fortis, Natixis and KBC are possible candidates in the France/Benelux region," said KBW.
Based on latest prices, Credit Agricole shares have fallen by 27 percent since the start of 2007, underperforming a 17 percent fall in the European bank sector.
(Additional reporting by Blaise Robinson and Anshuman Daga; Editing by Will Waterman and David Holmes)
