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Crédit Agricole says Italian acquisition will boost revenues in 2018

Crédit Agricole SA expects its acquisition of three mid-tier Italian lenders to boost revenues in 2018 as its cost-cutting efforts there bear fruit, according to group CFO Jérôme Grivet.

"We expect [the three Italian banks] to generate some additional revenues as soon as 2018 because we expect our restructuring efforts to produce their first results this year," he told analysts during a fourth-quarter 2017 earnings call.

The French group, which often refers to Italy as its "second home market," will complete the merger of the three savings banks Cassa di Risparmio di Rimini SpA, Cassa di Risparmio di Cesena SpA and Cassa di Risparmio di San Miniato SpA — with Crédit Agricole Cariparma SpA in the first half of 2018, Grivet said. He added that the acquisition, which was completed in December 2017, would increase earnings per share by 1% by 2020.

The three lenders posted a loss in the fourth quarter of 2017, largely due to a cost-to-income ratio of 118%, Crédit Agricole said. The latter's own cost-to-income ratio was 62.8% at the end of 2017.

"It shows the room of improvement that we have," the CFO said, adding that the objective was to "reduce massively" the cost-to-income ratio in 2018, with Crédit Agricole aiming to cut costs at the three Italian banks by 25%.

'Normalization of the home-loan market'

Crédit Agricole's fourth-quarter 2017 net income group share was €387 million, up 32.9% year over year. The bank said the result included a negative impact of €384 million due to tax adjustments in France and the U.S.

Revenues rose on a yearly basis to €4.65 billion from €4.58 billion. Meanwhile, Crédit Agricole Group reported fourth-quarter 2017 net profit of €922 million, up 37.4% year over year.

Revenues at the lender's retail banking unit, Crédit Lyonnais SA, known as LCL, dropped 3.9% to €846 million, with net income down 19.3% to €138 million.

French banks have been suffering from the low-interest-rate environment, which has been eating into income and margins and weighing on their financial results.

But Grivet said the wave of mortgage renegotiations in France was over, with €100 million worth of loans renegotiated in January compared with almost €2 billion a year earlier. "You can see a trend of the normalization of the home-loan market," he said.

French borrowers predominately have fixed-rate mortgages and have taken advantage of the low-interest-rate environment to renegotiate their loans.

Crédit Agricole's common equity Tier 1 ratio was 11.7% at the end of 2017, down 30 basis points quarter over quarter as the bank integrated the three Italian lenders and a wealth management business in Asia.