Credit Agricole Has Wider-Than-Estimated Loss on Writedowns

February 23, 2012, 5:14 AM EST
By Fabio Benedetti-Valentini
(Updates with CEO comment from third paragraph.)
Feb. 23 (Bloomberg) — Credit Agricole SA, France’s third- largest bank, reported a greater-than-estimated loss in the fourth quarter after setting aside money at its Greek consumer- banking network and writing down investments.
The shares dropped after the net loss widened to 3.07 billion euros ($4.07 billion) from a deficit of 328 million euros a year earlier. That missed analysts’ estimates for a 2.7 billion-euro loss.
In 2012, “the main worry is the need for economic growth to get restarted,” Chief Executive Officer Jean-Paul Chifflet said in an interview with Bloomberg Television. The company, which holds the largest lending book in France, plans “to keep financing” the economy, he said.
Credit Agricole scrapped its 2011 dividend in December and said it can’t confirm 2014 targets because of “the lack of visibility on the economic and financial climate.” The bank, along with BNP Paribas SA and Societe Generale SA, is cutting investment-banking jobs to reduce costs after Europe’s debt crisis curbed trading revenue, U.S. money-market funds reduced short-term lending to French lenders and regulators imposed stricter capital rules.
Credit Agricole fell as much as 21 cents, or 4.2 percent, to 4.80 euros and was at 4.88 euros at 9:02 a.m. in Paris trading. That pares the gain this year to 12 percent. BNP Paribas, France’s biggest bank, has risen 18 percent this year, while Societe Generale, the No. 2 lender, has advanced 32 percent.
Greek Writedowns
European financial stocks rebounded in the first seven weeks of the year after the European Central Bank provided 489 billion euros to lenders through a three-year refinancing operation in December.
BNP Paribas and Societe Generale both said last week that they wrote down their Greek sovereign-debt holdings by 75 percent. BNP Paribas reported a 51 percent drop in fourth- quarter earnings on Feb. 15, while Societe Generale said the next day that profit in the period declined 89 percent.
Credit Agricole said in a statement that it booked about 2.6 billion euros in writedowns on investments including its stake in Spain’s Bankinter SA and Banco Espirito Santo SA of Portugal in the quarter. The company also had 220 million euros in fourth-quarter markdowns on its Greek sovereign-debt holdings, bringing its average writedown level to 74 percent.
Emporiki Losses
While Credit Agricole’s sovereign-debt provisions for Greece are smaller than those of BNP Paribas, it had a 5.5 billion-euro net refinancing exposure to the country at the end of December through its consumer-banking network Emporiki Bank of Greece SA. The Athens-based unit had a 352 million-euro fourth-quarter loss as provisions for risky loans increased. The French lender spent about 2.2 billion euros in 2006 to amass a controlling stake in the division.
Credit Agricole can’t commit to any target for Emporiki to stop the losses, Chifflet said.
“It would be quite audacious to say that it is in 2013, 2014,” he said. “We’ll try to do it as fast as possible, but without saying when because it depends a lot on the return to growth in Greece.”
Chifflet, 62, plans to reduce “by a maximum” Credit Agricole’s exposure to refinancing Emporiki and expects Portugal to escape the contagion after Greece received a second rescue this week.
Investment-Banking Deficit
Greece sealed a 130 billion-euro bailout package by agreeing on Feb. 21 to austerity measures while reducing its bond principal by 53.5 percent as investors swap into new securities with longer maturities and lower coupons.
Greek Finance Minister Evangelos Venizelos repeated yesterday that a formal invitation for the bond exchange will be made by Feb. 24. Real losses from the swap may be more than 70 percent, analysts have said.
Credit Agricole’s corporate- and investment-banking unit had a fourth-quarter loss of 1.2 billion euros compared with a 263 million-euro profit a year earlier, hurt by a one-time 1.05 billion-euro capital-markets goodwill writedown and higher losses from subprime-era assets the lender is winding down, according to Bloomberg calculations from bank data.
The corporate- and investment-banking division also booked 336 million euros in one-time costs as it closes businesses and cuts jobs.
Credit Agricole’s corporate and investment bank will close operations in 21 countries, remaining active in 32, while ending its equity-derivatives business, the firm said Dec. 14.
The bank is shedding about 1,750 positions at the corporate and investment bank, including 550 in France, it said in December. The company is also eliminating 600 consumer-finance jobs.
Asset Reductions
Credit Agricole is cutting fewer assets than its two larger French rivals as the lender is also less vulnerable to the dearth of U.S. short-term dollar funding that hit European banks last summer, analysts have said. The asset-reduction plans don’t include the lender’s so-called run-off portfolio, Chief Financial Officer Bernard Delpit said in November.
Credit Agricole is cutting its debt by 50 billion euros between mid-2011 and the end of 2012, “especially” by refocusing on its corporate and investment bank, the company repeated today.
“Corporate and investment banking will reduce its balance sheet, adjust its cost base and adapt its business model to generate income in a restrictive environment, notably by increasing the share of commissions and fee income in its revenue mix,” the lender said.
The investment bank started off “well” in 2012, Chifflet said in the interview. The bonus pool for traders and other “risk takers” was cut by about 20 percent to an average of 105,000 euros, he said.
Profit from the regional banks’ French retail network rose 2.8 percent to 216 million euros while asset-management profit fell 8.8 percent, hurt by outflows in France, the lender said.
–With assistance from Caroline Connan in London. Editors: Stephen Taylor, Dylan Griffiths
To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net
To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net
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Student loans always are due, no matter how long overdue

By  Kathy Lynn Gray
The Columbus Dispatch Monday February 13, 2012 5:24 AM

If you think the student loan you took out years ago but never repaid won’t come back to haunt you, think again.
The debt could land you in federal court, pleading your case before a U.S. district judge.
“There’s no statute of limitations on student loans,” warned Assistant U.S. Attorney Deborah F. Sanders. “That debt is growing, and you still owe it.”
Sanders handles the student-loan default cases that come through the U.S. attorney’s office for the southern half of Ohio. Her office is pursuing about 400 cases.
“We get them because the (federal) Education Department has not been able to collect after many, many attempts,” Sanders said. “If it comes to our office, borrowers have had a lot of chances to pay.”
Defendants fall into two camps: those who don’t pay, and those who can’t, she said.
Usually the loans are years overdue, sometimes as long as 20 years. By that time, a large chunk of the money owed is interest that has accrued and compounded over the years.
In one case filed last year, the defendant owed $160,000, including nearly $25,000 in accrued interest on the 10-year-old loan. On another 10-year-old loan, nearly $40,000 of the $101,000 owed was interest.
If federal lawyers obtain a judgment against a debtor, the government can collect the money in a variety of ways. Wages and savings and checking accounts can be garnisheed, and tax refunds can be diverted, Sanders said. “We have a pretty good rate of collection.”
The court also can set up payment plans once a judgment has been made.
Unlike many other types of debt, student loans cannot be dismissed through bankruptcy except in rare situations, said Stephanie Dailey, a Columbus lawyer who specializes in bankruptcies.
“It’s almost impossible to get out of student-loan debt,” Dailey said. A debtor has to have a dire hardship, such as being completely disabled, she said.
About half the people who come to her with financial difficulties have student-loan debt, Dailey said. She advises them to approach the lender and try to get on a payment plan so that interest doesn’t continue to pile up.
“A lot of people will just stick their head in the sand and hope it’ll go away,” she said. “ Instead, they should let the creditor know they’re having trouble paying and ask for help.”
Dailey herself has nearly $100,000 in student-loan debt from law school. She has deferred her loans — postponed paying them with the blessing of the lender — when paychecks were lean. Interest continues to accrue during a deferral, but the lender won’t turn the loan over to collectors.
The number of student-loan defaults that went to federal court rose significantly in the late 1990s as the Justice Department pushed for collection. Nationwide, 1,142 default cases were filed in 1995; that number surged to 24,404 by 2000. But the number has fallen back since then as the Education Department has set up other ways to collect the debts, Sanders said.
At the same time, students are taking on more debt to attend college. In 2010, the average was $25,250, up 5 percent from the previous year, according to a study by the Project on Student Debt. The average in Ohio was $27,713. An estimated $1 trillion in total student loans is outstanding nationwide.
The default rate in 2009, the most-recent data available, was 8.8 percent. That includes borrowers with loan repayments due between Oct. 1, 2008, and Sept. 30, 2009. An estimate of the total amount of loan money in default is not available.
A survey released last week by the National Association of Consumer Bankruptcy Attorneys found that 81 percent of bankruptcy lawyers said the number of potential clients with student-loan debt has increased “significantly” or “somewhat” in the past three or four years.
The association thinks that student-loan debt could create an economic threat to the country as serious as the home-mortgage crisis did in the late 2000s.
kgray@dispatch.com

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