On Friday, Credit Agricole
(EPA:ACA) released its third quarter numbers, reporting a loss of €2.85 billion, which included a charge of €1.96 billion on the sale of Emporiki to Alpha Bank
(PINK:ALBKY) for a symbolic €1. In addition, CA also took a charge of €181 million on the sale of its CA Cheuvreux brokerage unit to Kepler Capital Markets, a writedown of €193 million related to the deconsolidation of its holding in Bankinter, a goodwill impairment for its consumer finance unit of €572 million and €647 million in CVA/DVA charges.
Unfortunately, Jean-Paul Chifflet, the CEO, offered these thoughts on the bank’s quarterly results:
“…restated for these specific items, normalized net income Group share was 716 million euros. Under the prevailing economic conditions, and taking into account the successful implementation of the adjustment plan and the reduction in business volume in the business lines that are undergoing restructuring, the results reflect a satisfactory operating performance.”
Not to beat up on Monsieur Chifflet, but to suggest that “normalized” net income was €716 million is akin to Mitt Romney suggesting that excluding Virginia, Florida, Wisconsin, and Ohio, he would be president. Post-bubble, everything on CA’s “do not call me on it” list is normal. When you pay too much for something at the top, you write it down as valuations fall. And I am sorry, unless you are happy with almost €3 billion in losses, there was nothing “satisfactory” about CA’s results.
But even more frustrating to me is the fact that analyst expectations were for a quarterly loss of only €1.8 billion. Talk about co-dependent delusion.
Admittedly, though, Credit Agricole is hardly the only global financial institution suffering from co-dependent delusion with the analyst community. How major US banks, for example, can continue to suggest that litigation accruals should be ignored because they are “one-time, non-cash accounting charges” or to offset against one-time gains is mind-blowing to me. And that the analyst community continues to believe this is equally perplexing. After in some cases 16
consecutive quarters, you’d think everyone would get the joke.
In the aftermath of a record global financial bubble, bad news is a normal recurring operating expense, and anyone with a financial history book would see that security losses, loan loss reserves, goodwill charges, and litigation expense move through bank earnings like conjoined quadruplets. When one is sick, they all get sick. The only question is when. (And thanks to the amount of management discretion in today’s bank financial statements, loss accruals and reserves tend to be pushed out as far and as long as they can be.)
Don’t get me wrong, Credit Agricole’s attempt to kitchen sink the third quarter may be time and a bounce, but there is nothing that I see which suggests that there won’t be more asset write-downs and liability “write-ups” among the European and US banks.
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“Peter Atwater brilliantly provides a framework for understanding both the socioeconomic hubris that led to the great credit bubble of the past decade and the dark social-psychological hangover that has resulted from its collapse. In so doing, he offers an invaluable guide to what promises to be a very difficult and turbulent period ahead as we experience what he calls the ‘me, here, and now’ behavioral tendencies of the post-crash world.” —Sherle R. Schwenninger, Director, Economic Growth Program, New America Foundation
Position in SH and JPM
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