By Matthew Curtin
A DOW JONES NEWSWIRES COLUMN

PARIS (Dow Jones)--Not for the first time, Credit Agricole is looking sluggish compared with its big French rival, BNP Paribas. This time it's in Italy.

As Banca Intesa and Sanpaolo-IMI merge, Credit Agricole, its stake in the enlarged bank diluted and its related partnerships possibly at risk, has little to show for a long-standing investment.

Credit Agricole has to come up with Plan B.

The bank has tied up billions of euros in equity in Intesa since becoming a shareholder at Intesa's formation in 1998. The return has been meager. Intesa's share price has risen slowly, but has underperformed the broad DJ Stoxx index of European banking stocks in the past five years.

Credit Agricole management helped Intesa bounce back from injudicious expansion in the 1990s by refocusing its domestic business. That no doubt did no harm to the French bank's reputation in Italy.

But after all that work, Credit Agricole now risks missing a major opportunity for European expansion at the very moment when the Italian banking sector is ripe for foreign investment.

As difficult as mergers are to pull off without destroying shareholder value, the alternative isn't any better. Equity-backed strategic partnerships provide influence with no control, and come with a big opportunity cost.

Contrast Credit Agricole's fortunes with those of BNP Paribas, which has already built a second banking base on the U.S. West Coast. A minor player in the euro-zone's third-biggest economy, BNP Paribas transformed its position in Italy when it unexpectedly scooped up BNL after the controversy surrounding BBVA's failed bid for the bank. BNL has quickly pepped up the results of its new owner.

Credit Agricole, despite being one of Europe's biggest banks by assets, remains essentially a French business, with 84% of net banking income derived from its home market in 2005.

Shareholders will want Credit Agricole to cut its losses with Intesa sooner rather than later to free up resources to pursue more deals like its new auto-financing joint venture with Fiat, where it at least has a share of control of the business, and outright acquisitions to reduce the bank's dependence on France.

The catch is that Credit Agricole's cumbersome structure - the listed-bank is controlled by a federation of powerful mutually-owned regional banks operating under the Credit Agricole banner - means it's never likely to take decisions quite as snappily as a BNP Paribas.

(Matthew Curtin has been a financial news reporter since 1990, and has reported on international finance and business for Dow Jones Newswires - from South Africa, Singapore and now Paris - since 1994. He can be reached at +331 4017 1740 or by e-mail: [email protected])

(END) Dow Jones Newswires

August 29, 2006 05:08 ET (09:08 GMT)

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