mercredi 24 février 2016

Credit Agricole Regional Banks

May 07 update
The AMF has decided (April 06) that a tender offer is not mandatory and made an answer to CCI holders : link (in French, no official translation available).

Some points of interest (rough/simplified translation from legal French, difficult for me):
- the principle of equality between shareholders is a structuring principle but not an absolute law, especially for CCI which are not shares but titles without voting rights
- the AMF judges that the operation will not adversely impact the liquidity or the dividends of the CCI, the regional banks stated that their results would be better in 2019 and the dividend distribution rate would not be reduced

Independent experts (Cabinet Ledouble, Duff&Phelps, Accuracy) have estimated that the transaction is fair. Strangely enough their reports are not available on the AMF website, which is usually the case.

In the last paragraph, the AMF makes an allusion to the next move made by Colette Neuville from the ADAM: sue the regional banks (see article here, in French).
Apparently the angle of attack is : CCI holders are entitled for a share of the net assets upon liquidation of the company, CCI are emitted for the lifetime of the company, and the lifetime of the company is unlimited. Basically the argument is that such an unlimited contract is illegal.

The ADAM will 1st make a formal request to the banks to buy out CCI shareholders who request it, then sue each regional bank if necessary.
The ADAM offers to small individual investors to do it for them, in exchange of a small fee to cover expenses.
I'm not competent to judge the chance of success but it's a situation with little to lose and a 3 bagger in case of success.

March 29 update

Latest news from ADAM argumentation: see article here (in French). Besides they encourage individual shareholders to directly contact the AMF which I've done.


If you screen the French stock exchange, you've probably stumbled on the Caisses Regionales du Credit Agricole. There's about a dozen of them (tickers : CRAP (!), CCN, CRTO, CNF, CAF, and so on...).
They trade at ridiculously low P/B and low P/E ratios.
I've owned some shares for several years now.

They're currently under the spotlight because Credit Agricole intends to "simplify" its structure ; however this simplification is also the occasion to shaft minority shareholders, as I'll try to explain.
I don't know what can be done about it, but I'll try to summarize current local events for non French-speaking investors.

For a general introduction to these banks and the investment thesis, see this article (page 54) by Paul Issac of Arbiter Partners in the spring 2013 edition of the Graham and Doddsville newsletter. I'll rely heavily on this article. It'll save me time and be clearer than my own dubious english.

Relationship between Credit Agricole Regional banks and Credit Agricole SA
Current structure:

From the Graham and Doddsville article:
The regional banks collectively own all of a holding company called Rue La Boétie, which owns 56% of the listed Crédit Agricole vehicle, which in turn controls their foreign holdings, the insurance
companies, the asset management division, and about 25% of each of the regional banks.

added personal note : Crédit Agricole vehicle, which also gets involved in all kinds of things big banks do, like investing in Greece at the worst possible moment (6 bn€), fooling around with derivatives (anybody remember Jérôme Kerviel ?) ... while the regional banks main activity is local lending, not very exciting but much safer I guess.

Capital structure of these Regional Banks
From the Graham and Doddsville article:
The regional banks needed capital in the 1990s, so they issued a class of share which is effectively a non-voting economic share that, for dividends and earnings purposes, ranks pari passu with the 25%
holding in each of the regional banks owned by the corporate and investment bank. 

Their  capital is composed of 3 classes of "shares" :
- CCA These are the shares owned by CASA in each regional bank. Generally the CCA represent 25% the a regional bank capital. These shares are not listed.
- CCI These are the listed shares you can buy on Euronext (see tickers above). Most are illiquid, but not an issue for an individual investor. These are non voting shares.
- PS or Parts Sociales. These are the only voting shares issued by each bank. They are owned by the local banks but also by the clients. They have a fixed nominal value, and get an interest each year.

Parts Sociales are a strange mix between a bond and a stock. But it's clearly not debt.
The annual report says : "Conformément aux dispositions de l’IFRIC 2, la qualité de capital est reconnue aux parts sociales des coopératives dans la mesure où l’entité dispose d’un droit inconditionnel de refuser le  remboursement des parts"
which I translate as :
"according to some obscure for me accounting standard, the PS are part of the bank capital, because the bank can unconditionally refuse to reimburse them".
Well, it doesn't make much sense to me, but that's it.

For instance here's the capital structure for CRAP (Alpes Provence regional bank)

CCA = 25 % of capital, CCI ~ 10 % of capital, the rest is PS.

Investment thesis
From the Graham and Doddsville article:
These entities are trading at five or six times earnings.
They're paying dividends of five to seven percent. Most  of them have buyback programs. There have been buybacks of whole share classes of these entities.
When they've occurred they've been at significant premiums to what these are currently trading for

Some details
2 Regional Banks (Aquitaine and Centre Loire) bought out their CCI shares in 2009.
The offer was about ~75 % of book value.
The details of the operation can be found on the AMF (French SEC) website.

Current reorganisation project
From the Graham and Doddsville article:
My hope is that these things are not entirely rational for an essentially mutual institution to have
outstanding indefinitely, and we may get some buybacks of whole issues.

Well some 3 years after his article, we do get some movement:

Translation :
Crédit Agricole SA sells its stake  in the regional banks to the regional banks at 1.05x book value
the regional banks will NOT make the same offer to minority investors. It is an "internal transfer operation" only !

Reaction from minority investors

Obviously minority investors (including me) are not pleased at all (article from Les Echos here, Investir journal here), in French only.
Some well-known local value funds are stressing the inequality in the treatment of shareholders (not exactly shares, because CCI are non-voting shares): Amiral Gestion, HMG Finance, Moneta Asset Management, Financière Tiepolo, but also our friend Arbiter Partners, Invesco and some others.
They have contacted Collette Neuville, a well known advocate of minority investors (association for the defence of minority investors, ADAM).
I've done likewise, I don't have the legal backround to argue my case and I suspect that the legal status of CCI shares is probably very special.

Let's see how this plays out.