French banks hit again by subprime losses

PARIS: French banks Credit Agricole and Natixis reported more heavy losses on Thursday as financial market turmoil mauled their business, forcing them to cut costs and raise cash to repair the damage.

Credit Agricole, France's biggest retail bank, said its three months to March net profit tumbled by two thirds to 892 million euros (1.32 billion dollars) as it took further write-downs of 1.2 billion euros.

Net banking income, an overall measure of profitability, fell 18 percent to 4.11 billion euros. At investment bank Natixis, first quarter earnings plunged 88 percent to 69 million euros as it took a hit of 439 million euros on its exposure to the US subprime home loan crisis.

Natixis said it would cut costs by 400 million euros, mainly in its investment operations, but noted that the environment had improved after a 2007 fourth quarter when it had a write-down of 1.39 billion euros.

"The impact of the financial crisis is still significant but clearly easing," it said, with its more postive line pushing the shares up nearly 16 percent in Paris midday trade. The bank said it would cut back dealings with external providers and job losses would follow at the group, which employs 24,000 people in all.

Credit Agricole shares were meanwhile down nearly one percent after unveiling a series of drastic measures to put its house in order. After announcing a cash call of 5.9 billion euros on shareholders earlier in the week, Credit Agricole said on Thursday it would also freeze takeovers of Spain's Bankinter and Italy's Banca Delle Marche.

Asset sales to raise about 5.0 billion euros in the next 18 months would be examined, it added.

Credit Agricole said it was replacing the finance director of its investment banking arm Calyon, Marc Litzler, by Patrick Valroff who heads its special financial services business.

The bank said Calyon, the unit most affected by the credit market turbulence, will cut costs by 10 percent this year and focus on more traditional business lines rather than the higher-risk asset-backed securities at the heart of the US subprime crisis.

Dealers said Natixis results were terrible but still better than expected, giving the stock, which has lost half its value in the past 18 months, a boost along with the cost cutting plan. "These are clearly disastrous figures mais there was all the same a positive surprise at the operating level, which was in profit (of 108 million euros) when we had expected a loss," said one dealer in Paris.

Leading US and European banks have been hit with heavy losses after a wave of US defaults and home foreclosures undermined the value of billions of dollars' worth of mortgage-backed securities.

The crisis has led to a global credit squeeze as the banks have become increasingly cautious about lending, raising fears of a sharp economic slowdown after a series of boom years when money was cheap.

Many banks have posted huge losses as a result, with Swiss banking giant UBS the worst hit so far, having taken write-downs of about 37 billion dollars and asked shareholders for fresh funds.