Crédit Agricole/Creval: big farmer seeks to sow abroad

Crédit Agricole’s no-nonsense approach reflects the bank’s farming heritage. Its refreshing slogan is “common sense has a future”. France’s second-largest lender wants to expand abroad, planning to absorb Italian peer Credito Valtellinese. Clearance from the European Central Bank came on Wednesday. But with Creval shares trading above the November bid price for a market worth of €850m, Crédit Agricole needs to offer more.

Cross-border deals are fiendishly hard to pull off in the EU. Crédit Agricole’s stolid character and Creval’s small size will make it easier. Banking supervisors might even have preferred a bigger acquisition; Banco BPM for example.

A slow and steady approach is advisable. Creval, with total assets of €24bn according to Refinitiv, still offers plenty of scope for Crédit Agricole to roll out its bancassurance model. The French bank, left a basket case by the financial crisis, is now highly rated by investors. That is a result of its emphasis on retail savings and low exposure to unpredictable investment banking. 

Last year’s results showed the benefits of diversification; underlying net profits were 44 per cent higher than expected. Derivatives losses incurred by other French banks were absent. Shareholders have received the benefits. Total returns have been 50 per cent higher than the wider European sector over the past five years, outperforming BNP Paribas.

The business model would be difficult to replicate. The listed Crédit Agricole is best thought of as the wider group’s product factory. From here it serves its network of regional client banks in France. Majority-owned asset manager Amundi is the best-known brand, but earnings from insurance are greater.

Stable business lines mean the bank targets one of the lowest core equity tier one capital ratios of a large EU bank at just 11 per cent. It was the only one of them to increase its payout — made partly in shares — last year. About half of the current 200 basis points of excess capital is expected to go towards unwinding measures dating from the financial crisis. That is expected to boost earnings and returns to shareholders.

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