Credit Agricole's EUR2.3bn capital injection into its Greek subsidiary Emporiki, while at the upper end of our expectations, is consistent with the group's current credit rating. This injection was requested by the Greek banking regulator and provides more clarity over potential future losses, Fitch Ratings says.
We downgraded Credit Agricole's Viability Rating to 'a' from 'a+' in June, reflecting modest earnings, only adequate capital and the risks linked to the bank's exposure to Southern Europe, in particular the troubled Greek subsidiary. Emporiki contributed a net loss of EUR1.3bn to Credit Agricole's results in the first half of the year and we do not expect the Greek bank to return to profitability before 2014. A sale would limit uncertainty over future losses.
Credit Agricole said it has received binding offers from several Greek banks for Emporiki and the overall loss that it books will depend on the size of these offers. However, even if the sale price were zero and the group lost the entire EUR2.7bn of capital in Emporiki, we believe Credit Agricole would still be able to absorb this loss through annual earnings.
Following the capital injection, Credit Agricole's net refinancing to Emporiki has fallen to EUR2.3bn. However, its total net funded exposure to Emporiki including capital remained at EUR5bn, which would be at risk in case of redenomination in the event of a Greek exit from the eurozone. Although this is not Fitch's central forecast, it cannot yet be ruled out. If a sale reduced Credit Agricole's net funded exposure, it would further cut the risk of redenomination losses.