Credit Agricole is selling its private equity unit for more than 300 million euros ($390 million), a banking source close to the deal said, as the French bank looks to cut its exposure to risky assets.
In spite of large disposals in 2011, banks still have tens of billions of dollars in private equity assets. That raises the prospect of more sales as they try to shrink balance sheets.
The sale to Coller Capital, a British-based firm which specialises in buying secondary private equity assets, will reduce the risk-weighted assets of Credit Agricole by 900 million euros, the French bank said on Friday.
That is a fraction of the 30 billion euros in risk-weighted assets the bank — which this week announced its second profit warning of the year — has said it aims to ditch by January 2013.
“In terms of risk-weighted assets, it is peanuts compared with Credit Agricole’s total of 370 billion,” said one London-based analyst.
“But it is another sign that banks are unwinding all the kinds of activities that were very sexy during the leverage boom. This kind of thing takes up management time and has an unfavourable impact under Basel III.”
Private equity assets are seen as among the most risky under Basel III regulations, making them more attractive to sell, whether banks are well capitalised or not.
“Here in Europe, I think the scale of opportunity for buyers is large, diverse and going to accelerate through 2012 and 2013,” said Tim Jones, deputy chief investment officer at Coller Capital.
Credit Agricole shares, down 60 percent in the last 12 months, were up 1.2 percent by 1510 GMT, outperforming the European sector, which was 0.4 percent higher.
Credit Agricole and Coller Capital declined to provide further details of the deal.
RACE TO THE EXIT
Many European banks invested in private equity funds throughout the buyout boom to get a seat at the table for financing and advising on some of the largest deals of the last decade.
Others such Credit Agricole, under the guidance of Fabien Prevost, chairman of the private equity group, built up teams to invest mainly bank money and that of its insurance arm, directly in buyouts, venture capital, infrastructure and other sectors.
Now many of those banks and insurers that invested heavily in the sector are scrambling to unload non-core divisions as they face tougher capital and solvency requirements.
Europe’s banks still have $40 billion to $45 billion of private equity assets to sell, estimates Thomas Liaudet, partner at Campbell Lutyens, a firm that advises on the sale of private equity assets.
Credit Agricole’s larger rival BNP Paribas is mulling a sale of its majority stake in property unit Klepierre , financial daily Les Echos reported on Friday.
It is also considering selling a portfolio of some $700 million of private equity investments, people have said.
French insurer AXA has had its own private equity unit — substantially larger than Credit Agricole’s — on the block for months now.
AXA Private Equity itself has been a large buyer of assets from other banks, including portfolios from Barclays and Citigroup last year, and Natixis’s private equity business in 2010.
Disposals by banks accounted for 46 percent of the so-called secondaries market in 2011, according to Campbell Lutyen’s own research, a figure Liaudet expects to be broadly similar in 2012.
“We see a significant rise in deal flow coming from insurance companies,” Liaudet added.
Credit Agricole, which expanded its global footprint through acquisitions right up to the 2008 financial crisis, is trying to reduce financing needs by 50 billion euros by the end of 2012.
Both it and French rivals have been hit by a liquidity drought while they struggle to lower risk and boost their financial strength to comply with tough new capital regulations.
On Tuesday, Credit Agricole said it would post a full-year loss after taking 2.5 billion euros in writedowns for goodwill and the declining values of its equity stakes in Spain’s Bankinter and Portugal’s Banco Espirito Santo.
The bank, which under recently named Chief Executive Jean-Paul Chifflet is going back to its roots after an abortive global expansion plan, also cut 2,350 jobs in a cull of its investment banking operations that will see it exit entire business lines such as commodities and equity derivatives.
“More and more, the banks are now being forced to sell their business lines, sometimes even growth units, which raises many doubts about their future results,” said Benoit Peloille, a strategist with Natixis.