Low interest rates squeeze profits at Crédit Agricole

Crédit Agricole reported a 67 per cent slump in profits in the fourth quarter in the wake of a “massive” bout of mortgage refinancing by retail clients looking to cash in on historically low interest rates.

France’s second-largest lender by assets said that net income over the three months fell to €291m on the back of a €491m goodwill writedown at LCL, its retail bank, as customers sought out better mortgage deals.

Revenues rose 7 per cent to €4.58bn, helped by stronger results in its asset management and investment banking, helping to cushion the weakness in retail. “Only retail banking… did not contribute to revenue growth,” said the bank.

The results highlight how retail-focused European banks are struggling in an era of negative interest rates, which has squeezed net interest margins across the continent and pushed lenders to cut costs and try and diversify.

LCL had a 6 percent decrease in 2016 underlying revenue, a larger fall than for domestic rivals. French retail revenue was down 3 per cent at BNP Paribas and 3.5 per cent at Societe Generale.

Paris-based banks BNP Paribas and Société Générale are in the midst of transforming their retail operations to cut costs and improve their digital offerings.

BNP last month said it was planning to invest €3bn in digital technology over the next three years, while SocGen previously announced plans to cut 20 per cent of its branch network by 2020.

Philippe Brassac, chief executive of Crédit Agricole, last year announced plans to cut €900m in costs by 2019 and invest €7.7bn in digital, with the lender also expanding in asset management as a way to diversify away from retail.

The bank was hit hard by the fallout from a number of poorly timed acquisitions in Portugal, Spain and Greece just before the European sovereign debt crisis, costing it billions of euros. It has since retreated to become a more domestically-focused French bank.

The goodwill write down in retail was announced by the bank on January 20.

Commenting on the results, Mr Brassac said: “These encouraging results have laid the groundwork for the introduction of a normalised dividend policy,” adding that they “reinforced our confidence” in the company’s ability to achieve its 2020 financial targets.