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Crédit Agricole takes $5-billion hit as banks struggle to move on

Pedestrians walk in front of a branch of French bank Crédit Agricole in Marseille Feb. 1, 2013., France’s No. 3 bank announced a further $5.2-billion (U.S.) in charges on Friday as banks struggle to move on from ill-timed deals made before the 2008 financial crisis.

JEAN-PAUL PELISSIER/REUTERS

Crédit Agricole SA, France's No. 3 bank, announced a further €3.8-billion ($5.2-billion U.S.) in charges on Friday as banks struggle to move on from ill-timed deals made before the 2008 financial crisis.

The charges come less than three months after Crédit Agricole unveiled €3.6-billion of writedowns with its third-quarter results and will plunge it to the largest annual loss since it went public in 2001.

They also come a day after Deutsche Bank AG, Germany's biggest bank, announced almost $4-billion of charges.

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Banks across the world are cutting costs and selling off, or writing down, assets in a bid to meet tougher regulations aimed at preventing a repeat of the 2008 crisis.

The European Union's markets watchdog said last month it had told companies and their accountants they would be named publicly if they failed to properly write down goodwill impairments in their latest results.

Crédit Agricole shares are up 15 per cent so far this year, versus an 8.5-per-cent gain for the European banking sector, reflecting hopes its previous cleanups, such as shedding troubled Greek unit Emporiki, would allow it to turn a corner.

Crédit Agricole later on Friday said it had completed the sale of Emporiki to Alpha Bank and the deal would have a "slightly positive" impact on its 2012 fourth-quarter results.

Like other banks, Crédit Agricole has been selling assets and streamlining its business to meet stricter regulations after the 2008 financial crisis. Last November, it took a €1.96-billion writedown on the sale of Emporiki bank.

The shares opened down 3 per cent in Paris, but quickly trimmed their losses and closed up 3.37 per cent at €7.52.

KBW analyst Jean-Pierre Lambert called the latest set of charges "a delayed P&L [profit and loss account] recognition of value destruction from past acquisitions."

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Crédit Agricole is now trying to retreat from an era of disastrous, mostly cross-border deals, to refocus on its domestic business.

The latest charges include €923-million related to consumer finance and €852-million for Italian retail banking, as well as a €267-million writedown on the bank's 20-per-cent stake in Portuguese lender Banco Espirito Santo.

Crédit Agricole said €2.68-billion in goodwill writedowns reflected tighter regulatory requirements as well as "the present macro-economic and financial environment in the relevant countries and business lines."

Coming on top of a cumulative nine-month loss for the bank of €2.5-billion, the writedowns will mean a big annual loss when it announces fourth-quarter results in 20 days' time.

The charges will have no impact on solvency or liquidity ratios, the bank said, although a series of other accounting writedowns could have a marginal impact on regulatory ratios.

Those include an €850-million hit from the revaluation of its own debt on its quarterly revenues, which translates into a roughly €550-million impact on net profit.

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"There are many non-recurring charges and the goodwill impairment won't have an impact, so I think the market will ignore the news," said Exane analyst Guillaume Tiberghien.

French rival Société Générale SA last month said its fourth quarter would be hit by hundreds of millions of euros in one-off charges, including an unspecified portion of €384-million in goodwill for brokerage Newedge, which is co-owned by Crédit Agricole.

Crédit Agricole's own writedowns included €366-million for Newedge. After the writedowns, Crédit Agricole still has about €15-billion of goodwill on its balance sheet.

The €3.8-billion in charges include a €160-million impairment announced last week which reflects a move by the regional banks that control the listed entity to cut the value of their stake.

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