Credit Agricole, France's third- largest bank by market value, said profit was almost wiped out in the second quarter on charges tied to its stake in Portugal's bailed-out Banco Espirito Santo. Net income dropped 98 per cent to €17 million from €696 million euros a year earlier, the bank, based near Paris, said in a statement today.
Credit Agricole booked €708 million in costs related to its 14.6 per cent holding in Banco Espirito Santo. The Bank of Portugal on August 3rd unveiled a €4.9 billion bailout that will leave Banco Espirito Santo’s shareholders and junior bondholders with losses, while sparing senior creditors and unsecured depositors. Excluding the Espirito Santo losses and some one-time financial costs, second-quarter profit at the French lender rose to €1 billion as bad-loan provisions fell. The bank’s results show “strong underlying, strong capital, despite Banco Espirito Santo being written down to zero,” said Omar Fall, a London-based analyst at Jefferies International. One of the last equity holdings the bank had was Banco Espirito Santo and “it has not ended well,” Fall said.
Credit Agricole shares rose as much as 5.5 per cent to €10.85 as of 9:10 a.m. in Paris trading, extending its gain this year to 16 per cent and valuing the company at about €27.7 billion. By contrast, BNP Paribas SA, France's largest bank, has fallen 11 per cent this year, while Societe Generale SA, the country's No. 2 bank, has fallen 12 per cent. Banco Espirito Santo, once Portugal's largest lender, will be split in two, with depositors and healthy assets joining the newly formed Novo Bank while bad loans and junior creditors stay with the old bank until it can be shut down.
Credit Agricole was Banco Espirito Santo’s second-largest shareholder. The French bank recorded a €502 million charge to reflect its share of Banco Espirito Santo’s losses in the quarter, and a €206 million-euro writedown to cut the value of the holding to zero in its accounts. Portugal’s finance ministry said shareholders and subordinated debt holders, as well as board members and former board members directly involved in the events, will have to shoulder the losses, rather than taxpayers.
Credit Agricole, which had five people on Banco Espirito Santo’s board, was “deceived” by the Espirito Santo family and blames “bad practices that were unknown to us and outside of any governance procedure” of the Portuguese bank, chief executive officer Jean-Paul Chifflet told journalists on a conference call. Credit Agricole is considering legal options “to defend” its interests concerning Banco Espirito Santo, he said.
Bloomberg
