Credit Agricole’s foreign illusions

October 7, 2009

Credit Agricole is stumping up to support a 1 billion euro capital boost at Emporiki. The Greek bank, for which Credit Agricole paid handsomely just 3 years ago, has proven a disaster. Just as well that it never managed to acquire a bigger foreign portfolio.

It is not wholly surprising that Agricole has been keen to buy banks abroad. Ever since the Credit Lyonnais acquisition in 2003 it has had a dominant position in France, constraining further expansion. So to scratch that dealmaking itch, management had to look beyond the home market.

But acquisitions are not Agricole’s forte. It made a mess of the Credit Lyonnais deal. And its foreign experience has been mixed. In 2006, as prices for banking businesses were approaching their zenith, Agricole spent more than 9 billion euros on a string of acquisitions in Greece, Egypt, Portugal, Serbia, Ukraine and Italy.

Emporiki was Agricole’s biggest standalone purchase and the French bank went to some lengths to acquire it. It even upped the price by 180 million euros, valuing Emporiki at 3.3 billion euros, when it was the sole bidder, to sweeten relations with the Greek government.

Even without a credit crunch, paying an estimated 20 times forward earnings for one of Greece’s weaker banks would have been a problem. Agricole has limited experience of running foreign affiliates and the mutual structure means it has little real experience of cost-crunching acquisitions even at home. Credit Lyonnais was kept separate from the Agricole network when it was acquired. The only bit that was integrated — the investment banking operations of the two sides — was a flop.

Agricole’s plans to impose cost discipline on the heavily-unionised bank have come to little — costs even rose last year as write-offs mounted. After a modest profit in 2007, the bank made heavy losses last year and in the first half as the Greek economy stalled.

Even Alain Strub, the troubleshooter recently parachuted in by Agricole to lead the turnaround, has had to admit that recovery at the Greek bank is more likely to be late than early 2011. Emporiki is now valued at just 1.4 billion euros.

But, still, it could be worse. Agricole even considered splashing out 7 billion euros for Alliance & Leicester in 2006 at the time it was negotiating the Emporiki acquisition. In a rare moment of sense, it walked away. Investors must be thanking their lucky stars it did. The British mortgage lender was picked up for 1.33 billion pounds by Santander two years later.

The lesson appears clear. Credit Agricole should not chase growth abroad for the sake of it. And the next time it comes across a foreign opportunity it should be minded to take an A&L style raincheck rather than the Emporiki plunge.

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