* Agricole takes part in 450 mln cap increase at Agos Ducato
* Injection follows Bank of Italy inspection last year
* Move is reminder of the bank's soured bet on Italy
* Solvency and profit won't be affected-analysts
By Christian Plumb
PARIS, May 9 Credit Agricole's part in a 450 million euro ($592.8 million) capital injection into its Italian consumer credit arm is a reminder that a retreat from other parts of southern Europe leaves it with exposure to the region's largest economy.
The Agos Ducato unit, which Credit Agricole this week confirmed is likely to provision for some 1 billion euros in bad loans this year, is a reminder of the bank's soured bet on Italy even after it has exited Greece and cut its exposure to Spain.
"The banking situation in Italy is pretty harsh," said Yannick Naud, a portfolio manager at Glendevon King Asset Management in London. "I'm not sure Credit Agricole has any competitive edge. If the climate worsens, they will be the first to suffer."
Bad loans at Italian banks rose by 21.7 percent in March, accelerating from 18.6 percent in February, Bank of Italy data showed on Thursday, the latest sign of how the economy's deep recession is hitting the country's lenders.
The new business plan the French bank announced for the ailing consumer credit arm, which has 18 billion euros in assets and where Italian lender Banco Popolare has a minority stake, represents a glimmer of hope that Credit Agricole can come to grips with the unit's woes and return it to profitability by 2014.
But it is far from a sure thing.
"We tend to take such business plans with a pinch of salt," said a London-based analyst. "Whether it's feasible really depends on the business climate in Italy."
In addition to Agos, which has been an albatross round the neck of Credit Agricole even as it managed to negotiate an expensive exit from its Greek unit Emporiki last year, the bank controls northern Italian savings bank Cariparma.
Agricole, which took a roughly 2 billion euro hit on the sale of Emporiki, also still owns a stake in Spain's Bankinter , although it has been selling that down, as well as in Portugal's Banco Espirito Santo.
Both profit and revenue edged lower at Cariparma in the most recent quarter and its provisioning for bad loans surged 44 percent from a year ago, though Agricole said such provisioning had dropped compared with the fourth quarter.
To be sure, Agricole is not the only major French bank with an Italian unit investors are keeping a close eye on. Larger rival BNP Paribas is still grappling with its ownership of BNL, where bad loan provisioning has also been creeping higher.
In an environment in which all French banks have been scaling back on consumer credit because of tougher capital regulations, Agos has been a thorn in the side of Agricole in particular.
In a management shakeup last summer, it installed Fiat finance veteran and Frenchman Alain Breuils as the group's CEO. The unit's problems - its percentage of troubled loans now stands at 14.8 percent - also triggered a Bank of Italy inspection last year.
Still, analysts said the latest capital injection represents a shift of funds that would not impact the bank's long suffering shareholders, who have enjoyed a rebound this year as the bank's shares have gained some 15 percent.
Credit Agricole shares were down 0.7 percent by 1254 GMT, compared with a 0.3 percent drop in the European banking sector as a whole. Banco Popolare shares were down 1.8 percent.
"It's a loss-making company and every time you reach borderline solvency you need to inject more funds," said analyst Guillaume Tiberghien at brokerage Exane BNP Paribas. "It was to be anticipated after the heavy losses of last year." ($1 = 0.7591 euros) (Editing by David Holmes)
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