France-based Crédit Agricole SA's strategic partnerships with big banks in other countries provide an efficient way to grow while avoiding the complications associated with large cross-border deals, analysts say.
The lender has signed a series of partnerships with other European banks, including a tie-up with Spain's Banco Santander SA in custody and asset servicing operations and a consumer finance agreement with Italy's Banco BPM SpA. It also recently started a consumer finance joint venture with Bankia SA, although this agreement could be threatened by the latter's merger with Spanish peer CaixaBank SA.
"The strategy is to have joint ventures or partnership with big banks or medium-sized banks in the countries where they operate," Arnaud Journois, vice president of global financial institutions at DBRS Morningstar, said in an interview. "They don't necessarily want to make a huge acquisition in those countries."
It is less costly and more efficient to simply go through joint ventures, and take advantage of existing networks to do things that would take longer if one were to acquire a bank in the country, Journois said.
Crédit Agricole has also experienced failed ventures abroad. It booked a more than €2 billion loss on its investment in a Greek bank at the height of the European sovereign debt crisis and sold it for €1.
Crédit Agricole Group, the ultimate parent of the bank, is the world's 10th-largest bank in terms of assets and CEO Philippe Brassac has previously said he prefers partnerships for growth.
"It is an optimized way to grow for an already systemically important bank," Nicolas Hardy, executive director in the financial institutions team of Scope Ratings, said in an interview.
"It's much easier through partnerships. The reason why they are going down that route is to manage their systemic importance."
European regulators have been pushing for more consolidation in Europe's banking sector, which has been hit by low profits as negative interest rates and weak economic growth have eaten into margins. CaixaBank's acquisition of Bankia and Intesa Sanpaolo SpA's takeover of Unione di Banche Italiane SpA have sparked speculation that a wave of mergers in Europe may be on its way.
Crédit Agricole has been linked to Milan-based Banco BPM regarding a potential deal in press reports, but analysts said this does not fit in with the bank's overall strategy of growing through partnerships.
Furthermore, Crédit Agricole CFO Jérôme Grivet, speaking at the Barclays Global Financial Services Conference in September, pointed out that both the Caixa-Bankia and Intesa-UBI tie-ups were domestic mergers. He said a large cross-border merger deal would face "very significant" regulatory headwinds, because there is not a single banking regulation and supervision area.
"And if you have entities in several European and even eurozone countries, it's not that easy to upstream or downstream liquidity or capital despite the fact that we are supposedly in a single banking union," he said.
His group's approach is to grow in several business areas such as consumer finance, car financing, custodial services and asset management. Crédit Agricole owns 70% of Europe's largest asset manager Amundi SA.
Crédit Agricole has expanded in Italy through the acquisition of three small Italian savings banks in 2017 and their merger with its Italian business Crédit Agricole Italia SpA, which ranks as the country's ninth-largest bank in terms of assets. It considers Italy to be its "second home market" after France, although its second-quarter Italy revenues stood at €431 million at the end of the second quarter, a fraction of its overall revenues of €4.90 billion, while loans outstanding stood at €44.2 billion.
Grivet said that while the bank had a small presence in Italian retail banking, it was able to use its size and specialized businesses to expand its presence in the country — for example, by distributing asset management products through UniCredit SpA. Amundi acquired Pioneer Global Asset Management SpA from UniCredit in 2016 in a €3.55 billion deal, which included a 10-year distribution agreement.
"They would like to be bigger in Italy," Hardy said. The bank has said it wants to grow its retail banking and property and casualty insurance businesses there.
Its main advantage would be its ability to cross-sell because of their diversified product offering, which it has developed in France and which is ripe for expanding into other countries through partnerships and joint ventures, he said.
Developing specific businesses such as consumer finance can help provide the bank with growth at a complicated time for European banks, analysts said. S&P Global Market Intelligence data shows the bank's consumer loans grew steadily through 2019 to €92 billion at the end of the fourth quarter, although they fell back to €88.4 billion at the end of the second quarter as the impact of the coronavirus was felt.
The bank has a strong position in home loans in France, Journois said, and consumer finance, with higher interest rates in both France and other European countries such as Spain, Portugal and Italy, could offer an opportunity to compensate for low rates on mortgages.
Consumer finance is riskier, especially in an economic downturn, so the pricing is critical, Hardy said.
"But if it is well done, it is an interesting area of development," he said.