Credit Agricole shares fall as French retail banking disappoints

By Maya Nikolaeva

PARIS (Reuters) - Shares in France's Credit Agricole fell sharply on Friday as investors focused on softer income from its French retail bank rather than its brisk investment banking business.

European banks are struggling to cope with record low interest rates, which cuts into income from lending.

Net income at Credit Agricole's French retail operation fell 1.4% in the third quarter, missing forecasts despite 9.2% growth in loans.

Shares in France's second-biggest listed bank traded 3.7% lower in mid-morning trading in Paris.

The lender's net interest income, which broadly reflects the difference between revenue from interest charged on a loan and the cost of holding a deposit, fell 1% in the third quarter. It is a gauge of earning power, closely watched by investors.

"Net interest income is a miss and shows quite some margin pressure while loan growth continues to be double the BNP/SocGen run-rate," analysts at Deutsche bank said in a note.

SocGen and BNP Paribas grew French retail loans by 5.7% and 5.9% respectively.

To protect returns on their retail businesses in a low interest rate environment, banks have little choice but to boost lending volumes or raise fees and commissions on other products.

Credit Agricole reported a 8.9% rise in quarterly overall net income on Friday, with its investment bank posting its highest third-quarter revenue since 2016.

Net profit rose to 1.20 billion euros ($1.33 billion), broadly in line with expectations of 1.14 billion euros, according to a Reuters survey of four analysts. Revenue rose by 4.8% to 5.0 billion euros.

The bank said underlying revenue from capital markets and investment banking increased sharply, up by 21.6%, driven by "strong commercial activity across almost all product lines," as well as an upturn in advisory transactions.

"Securitisation, bond issues help our clients get financing on the market. So we had some good business volumes on these two types of activity," Chief Financial Officer Jerome Grivet told journalists.

(Reporting by Maya Nikolaeva, Editing by Leigh Thomas and Edmund Blair)