Morningstar | Credit Agricole 2Q 2018: Corporate Lending Drives Strong Earnings Beat
No-moat Credit Agricole reported net income of EUR 1.4 billion for the first quarter of 2018; this represents an 8% increase compared with the second quarter of 2017. Consensus expected a much more muted quarter with a net income estimate of EUR 1.1 billion. However, quarterly numbers can be easily distorted by a few large transactions that will have less impact when spread out over the full year. Credit Agricole's earnings beat was largely driven by some jumbo corporate loans done in the quarter. These loans tend to be lumpy, and investors should be cautious in extrapolating these numbers into the future. We do not forecast quarterly earnings, but the run rate of Credit Agricole's numbers suggests that it is on track to meet our full-year 2018 net income estimate of EUR 4.1 billion. We maintain our EUR 11 fair value estimate and our no-moat rating.On a divisional basis, French retail banking (the LCL subsidiary) is still battling to increase revenue in a low-interest-rate environment. CA Assurance continues to deliver strong revenue growth, and asset manager Amundi (in which Credit Agricole has a 70% shareholding) delivered earnings growth of 60%, supported by Amundi's acquisition of Pioneer Asset Mangement from Unicredit last year. Cariparma continues to deliver strong bottom-line growth as loan-loss provisions continue on their downward trajectory in Italy. For a change, the undoubted star of the show was the corporate and investment banking division, which delivered decent trading results and granted some large loans, especially in the resurgent oil sector.
Credit Agricole is active in the market of retail banking and related businesses. Co. provides day-to-day banking, savings products, mortgage and consumer loans, insurance, private banking, asset management, lease finance and factoring, corporate and investment banking. Its activities can be divided into six business lines: French Retail Banking - Regional Banks; French Retail Banking - LCL; International Retail Banking; Specialized Financial Services; Savings Management and Insurance; and Corporate and Investment Banking. Co.'s customers are personal customers, farmers, small businesses, companies and local authorities. As of Dec 31 2013 Co.'s total assets amounted to Euro1,536,873,000,000.
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