Crédit Agricole to Report Historic Losses in 2012

Crédit_agricole_bank

Credit Agricole branch in Paris. Credit: Wikimedia Commons

On Friday, February 1 French bank Crédit Agricole, the third largest bank in finance, confirmed that it would make a 2.68 billion euro (3.64 billion dollar) goodwill writedown of the value of its assets.

Of the this, 923 million euros will come from its consumer finance sector, 852 million euros from its ownership of an Italian retail bank, 267 million euros from its 20 percent stake in Banco Espirito Santo, Portugal’s largest publicly traded bank, and 572 million euros due from its goodwill charges. Between these planned changes and changes that have already been carried out, the Paris based bank’s net earnings will be reduced by about 3.8 billion euros.

This decision comes two weeks after the European Union’s markets monitors told companies that they would be named publicly if they had failed to properly writedown goodwill impairments in their latest financial results. These writedown charges are attempts to regulate the “poorly timed deals struck before the 2008 financial crisis.”

The bank’s goodwill payment represents the difference between the amount paid to acquire a company and its book value. Writing down goodwill does not necessarily deplete capital, but it reduces profits and signals that a company overpaid for acquisitions.

The bank emphasized that the charge would have “no impact on its solvency or liquidity.”  Nevertheless a series of other accounting writedowns could have a larger impact on regulatory ratios. For example, its Core Tier 1 capital ratio, a measure of a bank’s financial strength on the list of top-quality capital such as equity and retained profit, may be negatively impacted.

In statement issued the same day, the bank said these measures “reflect the present macro-economic and financial environment in the relevant countries and business lines,” referring to the struggling Eurozone economy and new tighter regulations.

Just yesterday Germany’s largest bank, Deutsche Bank AG, took 1.9 billion euros of writedowns, while ArcelorMittal, the world’s largest steelmaker, announced in December that it would writedown by about 4.3 billion euros.

Crédit Agricole released this information before its scheduled report release of its full figures on February 20, 2013. In November it reported a third quarter loss of 2.85 billion euros for the July to September period, having sold off Emporiki, the bank’s Greek operation.

Crédit Agricole is controlled by 39 French regional banks, and therefore some have mentioned that the bank is trying to retreat from southern Europe in order to focus on their domestic business. The company’s original expansion came about immediately before the financial crisis, and most of its acquisition came though France’s Crédit Lyonnais bank.

Crédit Agricole has a market value of 18.2 billion euros. Its shares are up 15 percent so far this year, compared with an 8.5 percent gain for the European banking sector as a whole. Thus as confidence in the market is slowly returning, these heavy losses may be a bit easier for the banking world to bear.

Trackbacks

  1. […] Last Wednesday, February 20, French bank Crédit Agricole, announced a net loss of 6.47 billion euros for the year 2012. This statement sets the bank’s balance sheet “in the red” at a net negative of 3.8 billion euros. Great losses for the first three quarters of 2012 had already been declared, and this most recent announcement only confirms the extent of the losses. […]

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