Credit Agricole to Book EU2.68 Billion in Goodwill Writedowns

Bloombeg: Credit Agricole SA (ACA), France’s third- largest bank by market value, will book a net 2.68 billion euros ($3.64 billion) of goodwill writedowns in the fourth quarter to reflect stricter rules and a worsening economy.

“These measures do not involve any cash outflows and do not affect the strength of the group,” the Montrouge-based bank said in a statement today. While the goodwill charges come “primarily” from complying with tighter rules, “they also reflect the present macro-economic and financial environment in the relevant countries and business lines,” it said.

Credit Agricole is taking the charges following recent recommendations from the European Union’s markets authority. The bank had 16.9 billion euros in goodwill on its balance sheet at the end of September, according to its website.

The European Securities and Markets Authority called on Jan. 21 for improvements in disclosures after reviewing 800 billion euros of goodwill assets at 235 companies in 23 countries across Europe. Goodwill is an accounting convention that represents the amount paid for an acquisition over and above the fair value of its net assets.

While writing down goodwill doesn’t deplete capital, it reduces profit and signals a company overpaid for acquisitions. Deutsche Bank AG, Germany’s largest bank, yesterday took 1.9 billion euros of writedowns on goodwill and other intangible assets. ArcelorMittal, the world’s largest steelmaker, said in December it will write down the goodwill in its European businesses by about $4.3 billion as the region’s weakening economy erodes demand.

‘Cleaning Operation’

“The cleaning operation is still ongoing” at European banks, Jacques-Pascal Porta, who helps manage 800 million euros at Ofi Gestion Privee in Paris and doesn’t own Credit Agricole shares, said in an interview before the announcement. “But even heavy losses are easier to swallow as confidence has returned in the markets since last summer.”

Credit Agricole has gained 14 percent in Paris trading since agreeing on Oct. 16 to sell its unprofitable Greek unit, Emporiki Bank, to Alpha Bank SA for a token price of 1 euro. Credit Agricole, controlled by 39 French regional banks, has a market value of 18.2 billion euros. The bank is scheduled to report earnings in full on Feb. 20.

Credit Agricole invested 2.2 billion euros in 2006 to buy Athens-based Emporiki, and has written down the Greek unit’s goodwill in recent years. Credit Agricole expanded in southern Europe after its 2003 purchase of Credit Lyonnais SA, which strengthened its lead in French consumer banking.

Debt Charge

Credit Agricole is also taking 850 million euros in pretax charges from the revaluation of its own debt in the fourth quarter, it said today. Banks book accounting charges or gains tied to the theoretical cost of buying back their own debt as market prices fluctuate.

Credit Agricole also wrote down by 267 million euros its 20.2 percent stake in Portugal’s Banco Espirito Santo SA (BES) and booked a tax expense of 130 million euros on its insurance businesses. Credit Agricole SA (ACA) reiterated it will book about 160 million of fourth-quarter losses as its French regional lenders depreciate the value of their shares in the listed bank.

reporter on this story: Fabio Benedetti-Valentini in Paris