France's biggest retail bank, Credit Agricole, announced a 5.9 billion euros ($9.1 billion) rights issue to shore up its capital after further writedowns at its Calyon investment bank, sending its shares down sharply.
Agricole's confirmation of the planned fundraising and a 1.205 billion euro Calyon writedown that will hit first quarter profits came after a banking industry source said Calyon Chief Executive Marc Litzler might be on his way out of the company.
Agricole shares were down 5.6 percent at 19.56 euros in mid-morning trade, the biggest loser on France's benchmark CAC-40 index. The CAC-40 was up while the DJ Stoxx European bank sector was down.
"It's very, very bad. It's one loss too many," said Stratege Finance fund manager Valerie Cazaban.
Agricole said it expected Calyon to take the writedown during the first quarter due to the credit crunch.
This would lead to a net profit of 892 million euros for the banking group -- down 66 percent from last year and worse than many analysts' forecasts.
In March, Agricole reported a fourth quarter net loss of 857 million euros.
"In an uncertain market environment, the group sets the objective of a Tier One ratio of 8.5 per cent and of keeping this ratio between 8.0 and 8.5 per cent as long as the market conditions remain unchanged. The rights issue planned for this purpose is 5.9 billion euros," Agricole said in a statement.
Stratege Finance fund manager Cazaban said she was steering clear of Agricole shares and preferred to hold the shares of its rival French banks BNP Paribas and Societe Generale.
SocGen on Tuesday reported that its first quarter net profit had fallen 23 percent, but this was better than analysts had expected.
SocGen shares were 0.8 percent lower at 70.90 euros while BNP Paribas was up 0.3 percent.
Litzler Likely to Go
Agricole's planned rights issue is the latest capital raising exercise from a global banking sector damaged by losses in the U.S. subprime mortgage market.
Last month, British banks Royal Bank of Scotland and HBOS announced respectively plans to raise 12 billion pounds and 4 billion pounds through rights issues.
Agricole said that in future, it would allocate less capital to the Calyon investment bank and would give more capital to its retail banking operations.
Agricole said it planned to lower Calyon's risk profile and cut costs at the division.
Agricole's statement made no mention of Litzler's position, although a banking industry source close to Calyon told Reuters on Monday that press reports of Litzler's departure were "realistic." An Agricole spokeswoman declined to comment on the situation concerning Litzler on Tuesday.
Litzler came under pressure last September after Calyon announced an unauthorized trading loss.
Calyon had to book a 250 million euro charge related to an unauthorized trading position at its New York subsidiary.
Iris Finance fund manager Michael Sellam said he thought Litzler was likely to go.
"I think he'll be pushed out," said Sellam, who has also decided not to hold Agricole shares.
Agricole shares have fallen around 15 percent since the start of 2008, in line with a similar decline in the DJ Stoxx European banking sector.