Credit Agricole, France’s third-largest bank, has reported fiscal second quarter 2008 earnings. Despite adding another $1B to the previous $7B in subprime-related write-downs, the bank and the financial media are strumming the chords of an exhausted old song. Credit Agricole has been hit harder by subprime than any other bank in France, but somehow they manage to tout that the worst is now behind them.
Credit Agricole added most points to the FTSEurofirst 300, gaining 4.2 percent despite posting a 94-percent fall in quarterly profit, hit by around 1.1 billion euros of writedowns related to the credit crisis and monoline insurers.
‘People think that they’ve got the bulk of the writedowns out of the way and results in the third and fourth quarters will be better,’ said a London-based trader.
People think, thought and will think a lot of things. First they thought there was no credit crisis. Then they thought the credit crisis was contained. Now they think the credit crisis is over? People can think what they want, but the stark reality is that Credit Agricole swims in a sea of insolvency with the cold fingers of bankruptcy tugging on it. Who’da thunk it?
“Investors are hanging onto the news about solvency,” said Amandine Gerard, a fund manager at Richelieu Finance, which oversees $6.2 billion in Paris. “The Tier 1 ratio has improved, that’s the good news of the report.”
Investors should be clinging to this kind of info with the worst of the credit crisis still stretching out ahead of us. The management goons who get paid to deal with reality are betting that it’s going to get worse, and the increase in loan loss provisions prove it:
Credit Agricole’s risky-loan provisions in the second quarter jumped to 365 million euros from 211 million euros a year earlier, beating analysts’ estimates of 402 million euros.
Basically management is saying that it is less certain of its own future.
“Of course there’s a financial crisis,” Pauget said on a conference call. “We better understand it today. We’re determined to manage the situation.”
Yeah, we understand a lot of things today, one of which is that “determined to manage the situation” is not the same as “determined to survive it.” Cutting costs and raising capital can take you only so far, but survival depends on driving earnings, and Credit Agricole is going the wrong way on that front.
Net income at the company, which raised 5.9 billion euros in a rights offering in July, fell 94 percent to 76 million euros on markdowns linked to U.S. bond insurers. which raised 5.9 billion euros in a rights offering in July
But maybe the wrong way is the only way. Without the bank in control of its own future, managing the ship is the best anyone can do. It may have already been sunk a long time ago, and the quality of seamanship now determines only how fast it will go down.
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