Credit Agricole, based in Paris, plans to write down investments in collateralized debt obligations, securities created by bundling together bonds, by another 1.3 billion euros before taxes, and take 1.2 billion euros of provisions linked to a ratings downgrade of bond insurer ACA Financial Guaranty Corp.
``It's our tradition to be very rigorous, and we think we are at the upper end of what major international banks are doing,'' Chief Executive Officer Georges Pauget said on a conference call with reporters today. ``We don't expect to go beyond this level of provisioning.''
Record foreclosures on U.S. home loans to borrowers with poor credit histories have rattled debt markets and caused more than $80 billion of trading losses and investment writedowns at the world's biggest financial institutions. Standard & Poor's reduced its A rating yesterday on bond insurer ACA Financial, a unit of New York-based ACA Capital Holdings Inc., to CCC, suggesting potential default.
Canadian Imperial Bank of Commerce said yesterday it may take writedowns of about $2 billion on its U.S. subprime investments after ACA Financial's credit rating was cut. Toronto- based CIBC said ACA insures about $3.5 billion of its U.S. subprime investments.
Loss at Calyon
The writedown announced today will cut 2007 earnings by 1.6 billion euros and lead to a full-year loss at Calyon, Credit Agricole's investment banking unit. The company already reported 850 million euros of writedowns linked to risky U.S. mortgages in the first nine months of the year. Pauget said it hadn't started any new CDO structuring transactions since February.
Credit Agricole said the change won't affect its target for a tier 1 solvency ratio, a measure of financial strength, of between 7.5 percent and 8 percent at Dec. 31, or at the end of March 2008. The bank said the dividend won't be cut.
``I'm not sure the market was expecting such bad numbers,'' said Alain Tchibozo, an analyst at ING Groep NV in Paris. Still, because the dividend and solvency ratios are unaffected, ``it shouldn't have any impact.''
Credit Agricole fell 15 cents, or 0.7 percent, to 22.87 euros today, valuing the bank at 38.2 billion euros. The shares have fallen 27 percent since the start of the year, compared with the 17 percent drop of the Bloomberg European Bank Index.
Credit Agricole holds assets guaranteed by ACA, Pauget said, adding that confidentiality accords prevented him from providing details.