Credit Agricole SA, the French lender seeking ways to bolster capital buffers, said it’s exploring the sale of stakes in more than three dozen regional banks. The shares surged.
The operation would improve the “financial flexibility” of Credit Agricole, accelerating its capital buildup and allowing it to pay an exclusive cash dividend as early as this year, the Montrouge, France-based bank said in a statement on Tuesday. The price of the stakes in the regional banks may vary and the plan is subject to discussions with supervisory authorities, it said.
Credit Agricole is seeking to reorganize the financial ties with the regional banks that own a majority stake in the lender and which it owns shares in, to free up capital in the face of tougher regulation. Chief Executive Philippe Brassac is focusing on France and revamping the investment bank after retreating from a global expansion to help bolster earnings at the country’s third-largest bank.
“Banks with peripheral exposure are under pressure to improve their capital level,” said Arnaud Scarpaci, who helps manage 270 million euros ($293 million) at Montaigne Capital in Paris. “The regional banks represent Credit Agricole’s war-chest. Tapping money where available is the simplest way to act.”
Credit Agricole jumped as much as 6.5 percent, the biggest intraday gain in almost two years, and was up 4.5 percent at 11:40 a.m. in Paris. The shares have dropped about 12 percent over the past year, giving the bank a market value of 25 billion euros.
The deal could be valued at about 17 billion euros, people familiar with the matter said late Monday. Under the plan, each of the regional lenders would buy back the 25 percent stakes currently owned by Credit Agricole, said the people, who asked not to be identified because deliberations are private. The French lender may be ready to announce a deal in March, though it is discussing various options, the people said.
A spokeswoman for Credit Agricole declined to comment.
Credit Agricole may provide a large part of the financing for the regional lenders to buy back holdings, meaning it would get a smaller amount of cash right away than the 17 billion euros, said the people. The final valuation of the transaction could change and depends on the various equity and debt components of the deal, they said. The French bank is discussing the options with financial advisers, they said.
Brassac, who took over in May, is set to announce the bank’s strategic plans through 2020 at an investor day on March 9. Almost a third of Credit Agricole’s 2.63 billion-euro net income in the first nine months of last year came from its stakes in the regional banks.
In August, the company indicated that it had failed to win regulators’ backing for an overhaul of its structure, sending the stock down 10 percent. The bank has been looking for a way to reorganize financial links with the regional lenders, which both own a stake in Credit Agricole and are owned by the lender, in an attempt to free up capital for shareholders. Together, the regional banks own more than half of Credit Agricole’s shares.
The lender said last month that its minimum common equity Tier 1 capital level, a measure of financial strength, is 9.5 percent, applicable from mid-2016, and that it plans to maintain “solid cushions” above official requirements set by the European Central Bank while targeting a core capital ratio of about 11 percent by year’s end.
Credit Agricole’s plan to streamline its structure by selling stakes in local banks comes after a similar move by Natixis SA. In 2013, Natixis decided to sell holdings valued at 12 billion euros in the French regional lenders that form its parent, Groupe BPCE. That operation allowed Natixis to improve its capital ratio at the time while also distributing an exceptional dividend to shareholders.