December 6, 2023

Investment Banking

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Credit Agricole Rises in Record Investment Bank Quarter

(Bloomberg) — Credit Agricole SA’s investment bank posted a record performance in the first quarter as the French lender’s debt traders powered a surge in revenue.

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Underlying revenue from fixed income, commodities and currencies trading jumped 42% in the first three months of the year, outpacing a 9% jump at BNP Paribas SA and beating larger rivals in a difficult trading period. The performance contributed to record revenue at the corporate and investment bank.

Credit Agricole gained 4.7% at 10:34 a.m. in Paris trading, the biggest intraday gain in three months. The firm restated earnings for last year after adapting to a new accounting standard, making a comparison with analysts’ estimates difficult.

The trading business benefited from a recovery in primary credit markets and demand for hedging products in a quarter marked by uncertainty over the trajectory of interest rates and recession worries. Wall Street lenders’ fixed income revenue decline on average by 1% in the quarter. The French bank warned it may not be able to repeat the same trading performance in the current period.

“Today, there is some kind of a slowdown,” Deputy Chief Executive Officer Xavier Musca said on a call with reporters. “As market volatility decreases, our clients’ hedging needs decrease as well.”

What Bloomberg Intelligence Says:

Credit Agricole’s upbeat 1Q earnings, with 10% revenue lift to an all-time high — driven by 42% year-on-year growth in FICC trading, surpassing all leading peers — bodes well for growth momentum through 2023, while leaving consensus for stable revenue this year looking susceptible to upgrades. That’s supported by just 2% cost growth, implying positive jaws (revenue less cost growth) of 8 percentage points. Net asset outflows of €11 billion were a setback, but should reverse in 2H.

— Philip Richards, BI banking analyst

The set of results appears “decent” despite the restatement, with all key units outperforming, according to analysts at Keefe, Bruyette & Woods. Growth in deposits highlights the strength of its business model in times of stress, the analysts wrote.

After jumping last year on Russia-related concerns, the amount that the lender set aside to cover souring loans in the first quarter fell by almost half to €374 million. While Credit Agricole shows more caution towards the consumer credit and small SMEs segments, it doesn’t see a sign of deterioration for large corporates, Deputy Chief Executive Officer Jerome Grivet said.

A “recession is going to be avoided,” Grivet said in an interview with Bloomberg TV.

The bank, which stopped providing new financing to Russia at the onset of the invasion of Ukraine, kept driving down its exposure to Russia this year. The lender’s exposure to the country now stands at €2.4 billion at the end of April, executives said on a call with reporters.

While peers including BNP Paribas SA and Societe Generale SA saw their Paris premises raided by French prosecutors earlier this year amid suspicions of tax fraud related to a dividend arbitrage strategy known as”Cum-Cum”, Credit Agricole SA reached a settlement with French authorities to avoid being dragged into a criminal probe, Bloomberg News has reported.

The lender paid about €35 million in back taxes and fines, an amount that may swell as authorities are still investigating some of the lender’s trades. Grivet declined to comment on the settlement, but noted that the bank’s market share in securities lending and borrowing was “very small.”

Credit Agricole’s domestic network LCL saw revenue fall 5% to €936 million, while the international banking operations continued to benefit from rising rates, with revenue gaining 23% to €969 million.

Credit Agricole’s asset manager Amundi SA, which reported its earnings separately last month, saw clients clients pull €11.1 billion in the first quarter as traditional life insurance products lost their appeal amid rising markets and interest rates. Still, the firm’s expense controls helped it post higher-than-expected profit.

–With assistance from Macarena Muñoz, Anna Edwards and Mark Cudmore.

(Updates with analyst’s comment below fifth paragraph)

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