In a press release, the Crédit Agricole Group confirmed that its new CIB model is in line with its objective to reduce its financing needs by 15 to 18 billion euros, of which 9 billion euros by end 2011 and 75% in dollars. The new model is based on a strategy that aims to limit the size of the balance sheet:
- Adaptation towards the model “originate to distribute”: origination and structured financing, increase in bond solutions, increased development of syndication and securitisation, creation of early-stage partnerships with investors that could participate in syndications.
- Increased advisory and execution capacity in investment banking and brokerage.
From an operational perspective, it means a geographical refocusing, with the closure of operations in 21 countries [1] and a withdrawal from certain activities including equity derivatives and commodities.
Recall that the bank had already warned that it would stop some CIB activities, but few expected a complete withdrawal from GECD (Global Equity & Commodity Derivatives). The correlation trading book had already been sold during the year. What about selling the entire GECD activity?
CACIB will reduce its balance sheet assets, adapt its cost base to the reduction in balance sheet assets and adapt its business model in order to generate revenues in a restrictive environment:
Reduction in balance sheet assets, first with reduction in use of capital of around €18 billion by end-2012, mainly in equity derivatives and financing activities. And second with the reduction in risk-weighted assets of over €30 billion between now and January 2013. This
reduction relates to the cutback in operations, transfer of loans and portfolio disposals..
Adaptation of the cost base and reduction in balance sheet assets: adjustments in target items (13% reduction in the headcount) and an additional plan to cut other costs by 10% (support functions, purchasing)
Adaptation of the business model to generate revenues in a restrictive environment: support target clients, adapt prices to the new financing framework, increase the weighting of commission income in the revenue mix.
