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.