Credit Agricole profits plunge on BES bank collapse

French bank Credit Agricole SA on Tuesday said the collapse of Portuguese lender BES had slashed its second-quarter profits, and warned that it faces a US probe for possible sanctions-busting.
But the bank, one of the biggest in Europe by capitalisation, reported a strong underlying performance and its shares surged 5.74 percent to 10.88 euros.
Credit Agricole SA (CASA) said net profit for the three months through June slumped to 17 million euros ($23 million) from 696 million euros a year ago after it wrote off its stake in Banco Espirito Santo.
The group said it had been deceived by the family behind the Espirito Santo companies, and would back any legal action by a new management team.
This was a second such blow for Credit Agricole: two years ago during the Greek debt crisis it lost a total of 8.7 billion euros on its investment in Greek bank Emporiki.
Portugal narrowly averted a national disaster and a fresh eurozone crisis on Monday by launching a new bank as part of a rescue for BES totalling nearly 5.0 billion euros.
CASA now deemed its 14.6-percent share in BES to be worthless, and its total costs from the collapse to be 708 million euros.
Of that, the bank said 502 million euros came from losses at BES and 206 million euros from asset write-downs.
Portuguese Finance Minister Maria Luis Albuquerque said late on Monday that those responsible for financial offences behind the collapse would be "severely punished".
- Playing down sanctions probe -
CASA also said it was being probed by US authorities over dollar transactions which may have breached US sanctions.
About a dozen banks are known to be in the spotlight of US authorities, which fined French bank BNP Paribas a record $8.9 billion last month for breaking sanctions against Iran, Sudan, Myanmar and Cuba.
The bank was cooperating fully with US officials, CASA's managing director Jean-Paul Chifflet said alongside the results.
"For us, the size of this cannot be compared with some other cases which have arisen," he said. "In general, the volume of the transactions in dollars is far less than those of other big banks."
CASA has not made any specific provision for the matter, although the total money it has set aside for litigation is 1.1 billion euros.
CASA is the holding company of the Credit Agricole bank grouping of regional banks in France. This entity reported its net profit fell by 49.0 percent to 705 million euros.
Excluding exceptional items, particularly BES, Credit Agricole would have made a net profit of 1.69 billion euros.
- Considering BES legal action -
CASA chief executive Jean-Paul Chifflet told journalists "we can only deplore the fact that we have been deceived by a family with which Credit Agricole tried to create a real partnership to build up the biggest private bank in Portugal".
CASA said it would back any legal action by Portuguese authorities over the collapse and might go to court on its own.
The bank had been involved with the Espirito Santo family since the beginning of the 1980s, but began to reduce its involvement starting 2012.
At the end of last year, having already taken a write-down of 267 million euros on its investment in BES, its holding in the bank was worth 816 million euros.
Under Portugal's rescue for BES, a new entity Novo Banco will be given 4.9 billion euros of capital, while BES is left holding its bad assets and will be closed down.
Analysts credited CASA with a strong underlying performance. Jefferies investment group said: "Credit Agricole has published solid results, which are significantly better than the consensus view."