Crédit Agricole SA will make a 2011 loss, write off €2.5-billion ($3.4-billion) worth of assets and cut 2,350 jobs in a cull of its investment banking operations, the French bank said on Wednesday in its second profit warning of the year.
The warning reflects mounting pressure on lenders to curtail risky activities to meet tougher capital standards even as they wrestle worsening economies and slumping markets. The deepening euro zone debt crisis has slammed French banks in particular as traditional sources of dollar funding have evaporated.
"These are all things we would have expected to happen at some point, but putting it all in one quarter, in this kind of market, is unhelpful," said a London-based analyst who did not want to be named. "The stock is at bombed-out levels already … What will be key in how bad this gets is what they tell us about the ongoing business."
The bank is following in the footsteps of larger domestic rivals BNP Paribas and Société Générale SA, which have also announced job cuts primarily in investment banking as they seek to cut debt and wean themselves off funding markets frozen by the economic slump.
The pressure on the French banks' capital and liquidity has led to recurring speculation that they could eventually seek a government bailout, but Crédit Agricole chief executive officer Jean-Paul Chifflet denied that it would need any help in reaching stringent Basel III regulations.
"We will meet Basel III with our own resources," he told a conference call.
That will call for some bitter medicine.
Crédit Agricole, which in recent years abandoned its humble agricultural origins in favour of international growth, will exit 21 of the 55 countries where it operates and shutter entire businesses like equity derivatives and commodities.
The writedown includes €1.3-billion to reflect the shrinkage of its investment banking division and €1.23-billion as writedowns of minority stakes, such as those in Spain's Bankinter and Portugal's Banco Espirito Santo.
Mr. Chifflet said in an interview with Les Echos newspaper that the bank was mulling the sale of stakes in both lenders, although he ruled out the sale of its holding in its Newedge joint venture with Société Générale.
The bank also shelved its 2014 financial goals and eliminated its dividend for this year to preserve capital.
Analysts had expected France's No. 3 lender to post a full-year profit of €2.4-billion after it was profitable in all previous quarters.
In July, Crédit Agricole warned that deepening problems at its Emporiki Bank unit in Greece would wipe nearly €1-billion off its first-half results.
The job losses include 1,750 at Crédit Agricole's corporate and investment bank, which employs 13,000 people, and 600 at its factoring and consumer finance arms.
The bulk of the job losses will take place internationally, although 550 investment banking and 300 consumer finance jobs will be cut in France.
Crédit Agricole shares slumped 6.7 per cent to close at €4.23, part of a wider rout in French banking shares which saw Société Générale slide 8 per cent and BNP Paribas lose 7.4 per cent.
More than six months of intense market turmoil sparked by the euro zone debt crisis is pummelling investment banks globally, denting their bond and stock trading income and sparking a wave of layoffs in Asia, the United States and Europe.
JOB LOSS TALLY GROWS
Citigroup was last week among the latest to press ahead with job cuts, while banks in some of the crisis hot spots – such as Italy's UniCredit and Intesa Sanpaolo – are also laying off thousands of people.
More than 120,000 job losses have been announced this year, and many in the industry fear the tally will be greater than at the height of the financial crisis in 2008, as redundancies continue into 2012.
Like its French rivals, Crédit Agricole is primarily pulling back in certain financing businesses, such as those in dollars, which have become harder for it to access, and will cut staff accordingly.
It also has a European equity broker, Cheuvreux, and a majority stake in Asian brokerage CLSA. But the bulk of cuts are likely to fall in fixed-income, which houses its rates and credit divisions, analysts said.
Credit trading in particular has come under pressure at all banks this year as wary investors shy away from the market, and new regulation bites.
The recently appointed Mr. Chifflet has espoused a back-to-basics focus on retail banking in France and Europe after moves like the purchase of Emporiki backfired, rendering it deeply sensitive to turmoil in the euro zone economy.
Mr. Chifflet's team is mulling various ways of bolstering the bank's balance sheet, banking sources say, even though Crédit Agricole's robust parent network of regional banks has provided a cushion that has made raising additional capital unnecessary.
This may include more deal-making. The bank is close to announcing the sale of its private-equity activities, while it has also struck a deal to sell minority stakes in its CLSA and Cheuvreux brokerage brands to Chinese brokerage Citic Securities.
While Crédit Agricole would be open to letting Citic increase its stake in the ventures – now at 19.9 per cent – it aims to at least keep majority control, according to a person familiar with the bank's thinking.