PARIS Credit Agricole (CAGR.PA) posted its biggest full-year loss since it went public 11 years ago after an unexpected 838 million euro tax demand from France's socialist government compounded weaker revenues and hefty asset writedowns.
The French bank's full-year loss ballooned to 6.5 billion euros (5.67 billion pounds) as taxes on the sale of Emporiki Bank pushed Credit Agricole deeper into the red than expected.
Chief Financial Officer Bernard Delpit later told a news conference Credit Agricole expects to achieve a "significantly positive" result this year, though he did not give a precise target.
Investors seemed reassured, bidding its stock up by more than 4.5 percent, even though significant obstacles such as its continued reliance on stagnant French and Italian economies remain.
Bank executives told reporters an unexpected decision by French tax authorities to disallow a tax deduction the bank was seeking for the sale of Emporiki Bank triggered an 838 million euro tax hit, pushing fourth-quarter writedowns to 4.53 billion.
"The government told us very recently - (Monday) to tell the truth - that we could no longer deduct taxes from these losses," Delpit told a conference call.
The tax bill, on a 2.9 billion euro capital injection into Emporiki by Credit Agricole prior to the Greek bank's sale to Alpha Bank, had been in dispute because the transaction took place before a change in French tax law in August.
"It seems like the Emporiki capital increase took place before the change of policy by the government," said one London-based analyst. "It shows the attitude toward the banking sector really. It seems to be retroactive."
Socialist President Francois Hollande famously declared in last year's presidential campaign that he viewed the world of finance as his enemy, although he has since unveiled a banking reform bill widely seen as treating the sector with kid gloves.
Perhaps more importantly, France has been struggling to meet public-deficit targets, raising pressure on the government to tighten its belt and also find new revenue sources.
The tax expense, on top of previous writedowns mostly related to the impact of a worsening economic outlook on goodwill, pushed the quarterly loss at France's No. 3 bank to 3.982 billion euros.
The shock tax bill was the latest blow for the 119-year-old lender, which has spent the last year grappling with the legacy of ill-fated expansion binges into Italy, Spain and Greece, and shrinking its investment bank to focus on French retail banking.
Credit Agricole said on Wednesday its "normalised" profit excluding one-off items rose 10 percent from a year ago to 548 million euros, ahead of the 402 million average forecast among analysts polled by Thomson Reuters I/B/E/S.
Chief Executive Jean-Paul Chifflet added at the press conference that Credit Agricole was "working to respond to the external inquiries" relating to Libor and Euribor, adding that the bank had made no specific provisions for expenses concerning the probes.
Credit Agricole shares were up 4.85 percent at 1131 GMT and were the top gainers in the European sector .SX7P.
So far this year, Credit Agricole shares have surged 23 percent, nearly triple the rate of gain in the sector, as investors have flocked to riskier, higher volatility stocks and analysts bet that it offers good value.
The bank trades at 0.47 times book value, compared with a ratio of 0.69 times on average for its peers, according to Thomson Reuters data.
Quarterly revenue fell 23 percent including the negative accounting impact of the rising value of the bank's own debt to 3.326 billion euros, missing the 3.691 billion average of analysts' estimates.
"In 2012, we turned the page and profoundly transformed the group," Chief Executive Jean-Paul Chifflet told journalists. "Leaving Greece cost us dearly but it was a necessary decision."
Credit Agricole, which will pay no dividend on 2012 results, confirmed that it is targeting a Basel 3 common equity Tier 1 target greater than 10 percent for the end of 2013.
The semi-cooperative bank, which is majority controlled by a network of regional lenders, plans to announce a new three-year business plan in the autumn of this year, Chifflet said.
"There will be two main priorities governing the undertaking: the acceleration of improvements to our universal customer-focused bank and a deepening of changes that we've already begun on specialised financial services," Chifflet said.
While Credit Agricole has now sold out of Greece, its Italian banking and consumer credit operations remain a concern. Its Cariparma unit there posted a 10 million euro loss for the quarter with loan writedowns rising.
The Italian unit also roughly doubled an existing voluntary layoff plan to 720 employees.
Credit Agricole booked a 445 million euro loss when it sold its remaining stake in Italy's Intesa Sanpaolo (ISP.MI) for 791 million euros ($1.06 billion) in the second half of last year.
($1 = 0.7487 euros)
(Additional reporting by Jennifer Clark; Editing by James Regan and Hans-Juergen Peters)