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Crédit Agricole expects Italian acquisitions to break even in Q2

Crédit Agricole SA is expecting three recently acquired Italian savings banks to break even in the second quarter of 2018 and to make a full-year profit, the bank's CFO Jérôme Grivet said May 15.

The French group, through its Italian unit Crédit Agricole Cariparma SpA, finalized the acquisition of the three banks in the third quarter of 2017, and Grivet told analysts on a conference call that the lenders had made a loss of €4 million in first quarter, but that merging Cariparma with the three banks — Cassa di Risparmio di Rimini SpA, Cassa di Risparmio di Cesena SpA, Cassa di Risparmio di San Miniato SpA — would cut the cost base of the three acquired banks by 25% and the cross-selling of insurance, loans and asset management products to the banks' customers would boost their top line by 20%.

Such a move would push the banks' cost to income ratio down to 70%, from around 115% to 120% at the time of the acquisition.

"It's by far enough to justify the level of return on investments that we had in mind," Grivet said. He said Crédit Agricole would complete the merger of the three banks with Cariparma by September.

Crédit Agricole reported first-quarter net income group share of €856 million, up 1.2% on the year. Revenues rose 4.4% to €4.91 billion. Crédit Agricole Group posted a 10.7% drop on the year in net income group share to €1.43 billion.

Like French peers, BNP Paribas SA and Société Générale SA, the bank's fixed-income trading revenues were hit by a lackluster market in the first quarter, down 20% on the year. Grivet blamed the slump on weak demand on the bond market, with volumes down by 15% to 20%, but there were signs in April of a market improvement although it was difficult to give precise guidance for the year.

The bank's shares were up 1.83% as investors digested the news about the Italian integration and a strong performance at its insurance operations which saw profits up by 2.8%. Some 80% of inflows in its insurance division were for unit-linked savings products.

"We consider this quarter as a transitional one and we buy on weakness," analysts at Jefferies said in a note.

The French authorities have been concerned about lending outpacing economic growth in France and have warned that they may activate a counter-cyclical buffer in the months to come to calm the market.

Grivet said that such a move would be "quite digestible" because banks would have a one-year transition period to comply. In addition, the bank's regional lenders and the group as a whole were very sound in terms of solvency that it would be unlikely it would need to increase its capital to be in line with any such measures, he said.

Crédit Agricole SA's fully loaded common equity Tier 1 ratio was 11.4% at March-end, while at Crédit Agricole Group, the ratio stood at 14.6% at the end of March.

The recent decision by France's High Council for Financial Stability to limit exposure to highly indebted large firms based in France to 5% of their capital from July 1 would not be much of an impact on the bank, but was "part of a series of signals coming from the authorities in France saying that we have to be cautious in terms of credits," Grivet told analysts.