The FINANCIAL — According to Dow Jones, Credit Agricole is selling its direct 2.1% stake in Franco-Belgian utility Suez, worth an estimated 1.2 billion euros ($1.8 billion), France's biggest retail bank said on January 14.
Seeking to shore up its balance sheet, Credit Agricolesaid it will sell the stake to institutional investors. The bank will place an initial amount exceeding 24.5 million shares, with an overallotment option covering the distribution of further shares.
The move comes as banks around the globe make moves to bolster their capital position in the wake of huge subprime-related write-downs. Some, like Credit Agricole, have gone the way of asset sales.
Others include Merrill Lynch (MER), which late last year sold its life-insurance unit to Aegon (AEG) for $1.25 billion in cash. And in Europe, Deutsche Bank (DB) sold part of its holdings in insurer Allianzand industrial gas and engineering group Linde AGahead of its third-quarter results.
Other financial institutions, including Citigroup Inc. (C) and UBS (UBS) as well as Merrill, have entered into capital injections from overseas investors.
Following news of Credit Agricole's decision to sell its stake, shares of Suezlost 3% in midday trading in Paris. The rest of the utility sector weakened in Europe.
Suez is in the process of merging with state-owned Gaz de France .
Sorting-out process
Meanwhile, Credit Agricole shares — which lost more than a quarter of their value in 2007 — rose 0.7%.
The French bank has suffered heavy losses related to its exposure to subprime loans in the past few months. In December, the company announced a surprise write-down of 2.5 billion euros and said its Calyon investment-banking arm would post a 2007 loss.
In November, Credit Agricole reported a 17% drop in third-quarter profit due to a trading loss at Calyon.
Keefe Bruyette & Woods analysts last week downgraded the European banking sector to underweight from equal-weight, citing prospects for a poor economic outlook for the region and a lack of earnings visibility.
Meanwhile, defensive stocks such as Suez have had a good run recently. Suez shares rose roughly 19% in 2007, boosted by continued speculation of a tie-up with Gaz de France.
The two companies in September agreed to a merger, valued at 70 billion euros, of their gas and electricity operations, a deal that would create the world's third-largest utility by market capitalization. .
The new company will be led by Suez Chief Executive Gerard Mestrallet, who will become chairman and CEO. Top Gaz de France executive Jean-Francois Cirelli will become the No. 2, serving as vice chairman and president.
Merger talks between the two utilities first emerged in early 2006, when Suez became a takeover target for Italy's Enel. Eager to keep Suez, which was deemed a strategic asset, in French hands, the government engineered the proposed Suez-GdF merger.
In the end, the French state will also retain more than 35% of the new company and keep hold of the strategy.
Suez, meanwhile, will spin off its environment business, a major player in the North American water and waste market, in an initial public offering.
Deutsche Bank analysts on January 14 said in a note to clients that Suez is one of its favorite defensive stocks.
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