Crédit Agricole

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When it comes to banking sector rights issues, there is no French exception. Following Société Générale, Crédit Agricole – 54 per cent owned by a co-operative of regional banks – announced on Tuesday that it wants to raise €5.9bn. It also confirmed another €1.2bn of subprime-related writedowns in the first quarter, at the high end of expectations.

The decision to pull the trigger seems to mirror the move by HBOS in the UK. Crédit Agricole reckons that the banking environment is going to remain soggy for some time. Its bearish view on the economic outlook may in part be due to the breadth of its intelligence – Crédit Agricole is the biggest retail bank in Europe by revenues. If the board is hearing worrying signals, it is better to go after what capital is available now.

That said, Crédit Agricole has a weak balance sheet. On a Basel II basis, its current equity Tier 1 ratio is under 5 per cent. That would have been low even when investors were prepared to give banks the benefit of the doubt. Perhaps Crédit Agricole, with strong retail, consumer finance and asset management businesses, could have struggled its way back to health. But since the credit crunch, an equity Tier 1 ratio of 6 per cent is now considered the absolute minimum. Funnily enough, that is exactly where Crédit Agricole aims to be post the rights issue.

The trouble remains Calyon. As is common, a successful model for running an investment bank inside a retail culture has eluded Crédit Agricole. The new plan is to reshape Calyon, shrinking the nasty bits that led to the writedowns as well as businesses, such as equity derivatives, that Crédit Agricole should never have embraced so enthusiastically. There is a core, fairly traditional, investment banking business that has a future, but Crédit Agricole needs to be ruthless about paring back Calyon to this.

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