Crédit Agricole’s €737 million cash bid for Credito Valtellinese (Creval) has disappointed those hoping for an approach on Banco BPM, Italy’s third largest bank.
Given Crédit Agricole’s capital strengths, a deal with Banco BPM might have strengthened the top tier of Italian banking and boosted eurozone financial integration, but it was probably wishful thinking.
For more than a decade, Philippe Brassac, chief executive of Crédit Agricole’s listed arm (CASA), has won political capital in the group by pushing for a reorientation – strategically and in the governance – back towards its member-owned retail banks in France.
He has done so by railing against CASA’s pre-2008 mistakes, including investment banking over-exuberance and botched bank purchases in Greece and Portugal.
Today, Brassac would struggle to sell an acquisition as large as Banco BPM – which is also looking for a merger – to the French mutual banks, CASA’s main shareholders.
Creval, by contrast, allows him to answer questions about what he is doing to take advantage of the latest wave of consolidation in Europe, without looking like he is taking a notable risk on the group’s capital and reputation.
NPL importance
Based in the Alps north of Milan, Creval is transformational for Crédit Agricole’s Italian business, but not for Crédit Agricole. Total assets of about €24 billion compare with €65 billion at CASA’s Parma-based Italian bank today.
Most importantly, Creval has a non-performing loan (NPL) ratio similar to Crédit Agricole Italia, around 6%, which is much lower than Banco BPM’s 8.6%. And Creval has a high CET1 ratio, 17.2%, compared with 13% at Crédit Agricole Italia and 14.1% at Banco BPM.
Opting for Creval over Banco BPM shows some discipline
Crédit Agricole can rely more on these numbers, as it already has an exceptionally tight relationship with Creval. Banco BPM, it is true, also has a relationship with Crédit Agricole in consumer finance, but this is a less strategically important product for the French bank than life insurance.
Meanwhile, when Crédit Agricole Assurances (CAA) bought Creval’s life insurance business in 2018, it took a 5% stake in Creval, later increased to 9.8%, to strengthen an accompanying long-term and exclusive distribution agreement.
CASA has no such stake in Banco BPM. The latest bid is, therefore, in some ways an extension of the CAA deal, which like the one in 2020 was also advised by JPMorgan.
Cross-selling scope
Buying Creval makes some sense now as it should bring more cross-selling scope for CASA products, including asset management and consumer finance, as well as cost synergies and funding benefits.
That is vital given Creval’s cost-to-income ratio still stands at 70%, despite closing about a third of branches during the last year, according to research from Banca Akros.
Opting for Creval over Banco BPM, therefore, shows some discipline. Or rather it shows the tightness of the mutual-banking straitjacket in which Crédit Agricole now finds itself – probably for its own good.
It will still be a mid-tier bank in Italy, but what matters is profitability and resilience, things Creval can offer much more of than Banco BPM, despite their relative sizes.
