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French banks stung by further credit crisis losses

Aug 28, 2008 Market Outlook

French banks stung by credit-crisis losses

Natixis, Credit Agricole refocus investment banking operations

By Simon Kennedy, MarketWatch

Last Update: 8/28/2008 10:28:00 AM

LONDON (MarketWatch) — France’s third- and fourth-largest banks reported
slumping results from the credit crunch on Thursday, with Credit Agricole
revealing a 94% profit drop and Natixis swinging to a loss of about $1.5 billion.

The weakened results have also left both banks promising to refocus their
investment banking operations to cut costs and risk.

Natixis (FR:012068) said it swung to a bigger-than-expected net loss of 1.02
billion euros ($1.49 billion) in the second quarter, from a profit of 1.01
billion euros a year earlier.

The credit crisis led to write-downs of around 1.5 billion euros in the period,
in line with the charges the bank announced in July when it said it would need to
raise 3.7 billion euros of fresh capital. See archived story.
Click for Detail

CEO Dominique Ferrero told analysts that its plans include “immediate measures
that aim to significantly reduce the risk profile of the corporate and investment
banking division and then more structural reforms aiming to focus resources on
our strong points.”

The immediate steps include a “significant decrease” in high volatility,
proprietary trading activity, or bets the bank makes with its own money. In some
areas proprietary trading could cease altogether, Ferrero added.

The bank will also cap its risk exposure in certain sectors or geographic areas.

Over the longer term, it’s planning to scale back the proportion of capital
allocated to corporate and investment banking to 46% in 2010 — from 52% in 2007
– and is targeting annual growth in net banking income of 4%, excluding the
impact of the credit crisis.

Even excluding the effects of the credit crisis, net banking income at the
investment banking unit was down 29% in the latest quarter at 689 million euros.

Shares in Natixis dropped around 5% in afternoon Paris trading and are down more
than 60% since the start of the year.

Also weighing on the shares was the lack of any further comment on the group’s
planned secondary stock offering — the stock lost almost 5% on Wednesday after a
report that the issue would be at a hefty discount to the current price.

Shareholders will meet Friday to vote on the stock offering. The bank’s majority
shareholders Banque Populaire and Caisse d’Epargne have already agreed to back
the share sale.

But minority shareholders are less happy with the plans and U.S.
activist-investor David Einhorn has urged Natixis to scrap the rights issue and
consider selling its stake in its parent banks instead. See archived story.
Click for Detail

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Technorati Tags: Banking Operations, Bets, Credit Agricole, Credit Crisis, Credit Crunch, Dominique, Ferrero, French Banks, Geographic Areas, Investment Banking, Marketwatch, Natixis, Profit Drop, Proportion, Proprietary Trading, Risk Exposure, Risk Profile, Second Quarter, Strong Points, Volatility

Tags: Banking Operations, Bets, Credit Agricole, Credit Crisis, Credit Crunch, Dominique, Ferrero, French Banks, Geographic Areas, Investment Banking, Marketwatch, Natixis, Profit Drop, Proportion, Proprietary Trading, Risk Exposure, Risk Profile, Second Quarter, Strong Points, Volatility