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Last updated: April 7, 2013 9:05 pm
Crédit Agricole aims to turn round its lossmaking investment bank by further shrinking its activities and costs, in order to focus on becoming a European debt house, the investment bank’s chief executive has said.
Jean-Yves Hocher, chief executive of Crédit Agricole corporate and investment bank, told the Financial Times in an interview that he would cut costs by 15 per cent between now and 2015-16 with the aim of achieving a sustained return on equity of 12 per cent.
The investment bank has been lossmaking in four of the five previous years – a legacy of plunging into structured credit derivatives that turned out to be toxic in the 2008 financial crisis.
However, Mr Hocher said there was no question of Crédit Agricole – which has its roots in lending to French farming and is 56 per cent owned by its regional banks – disposing of its investment bank.
“As Crédit Agricole’s aim is to remain a universal bank, it is important for it to be in investment banking. We are now operating at a very low level of risk compared to other investment banks, accepting that the returns will at times be more moderate,” the 57-year-old said in the unit’s offices overlooking the river Seine in Paris’s La Défense business district.
Mr Hocher, who has headed the investment bank since December 2010, the year it changed its name from Calyon to CACIB, has slashed the headcount by 11 per cent to 9,440, withdrawn from 10 countries – leaving a presence in 32 others – and reduced risk-weighted assets by €30bn through disposals, including brokerage, and by cutting back market activities.
But the unit’s contribution to risk-weighted assets is 33 per cent of the group total, which is still higher than its 24 per cent revenue contribution.
The 15 per cent cost-cutting target – equating to €250m – will be achieved by accelerating the closure of the equity derivatives and commodities businesses, finding greater synergies and more cross-selling with other businesses. No more job cuts or disposals are planned.
Mr Hocher hopes that by specialising in debt markets and financing activities, which account for 95 per cent of CACIB revenues, up from 70 per cent in 2006, the investment bank will secure a profitable niche.
“Being a medium player does not mean being a second-tier player because we are well-positioned in what we are doing, which is issuing bonds in Europe, securitisation and financing assets,” he said.
The investment bank will continue to finance assets, such as shipping, aircraft and project finance, which Mr Hocher calls “the heart of our business”. It also aims to specialise in a growing trend in Europe for companies to finance themselves through capital markets instead of bank loans – a market in which domestic rivals and foreign banks are also hoping to play a greater role.
The change is expected because of the tougher Basel III regulations requiring banks to hold more capital, which has made it more expensive.
Mr Hocher said: “Because of the pressure on risk-weighted assets, we are obliged to reprice loans and as a result, bond-financing will become progressively cheaper than loan-financing.”
Analysts at Morgan Stanley said Crédit Agricole, “Showed clear commitment towards refocusing and cost cuts, although there remains plenty of uncertainty about the long-term potential of the originate-and-distribute model.”
Mr Hocher is aware of the scepticism the investment bank’s inglorious recent past may elicit about future promises but says that syndicating loans – it keeps about 20 per cent on its books – has not been a problem.
“We have no difficulty in finding partners to share the loans with us because even if liquidity is scarce in Europe, there is lots of cash in the US and Asia, especially Japan, where pension funds have a lot of money to invest and are buying loans with good margins. So we’ve had no issue in syndicating our loans with pension funds or insurers,” he says.
Last year the investment bank made a loss of €880m, due to exceptional charges that included a €826m goodwill writedown, losses on the sale of some businesses and a €549m charge on the theoretical cost of buying back the bank’s debt.
Mr Hocher promises there will be far fewer nasty surprises this year: “The only ongoing negative this year will be the revaluation of own debt.”
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