Calyon Sees Lower Profit on $347 Million Trading Loss

Sept. 18 (Bloomberg) -- Calyon, the investment banking arm of France's Credit Agricole SA, said third-quarter profit will be ``sharply down'' after an unauthorized proprietary trade cost the bank 250 million euros ($347 million).

Calyon discovered an ``unusually large market position'' on diversified credit market indexes at its New York unit on Sept. 4, the Paris-based company said in a statement today. The trade, which breached authorized limits, has no relation to the subprime mortgage market, the bank added.

``The position has been brought back within the normal trading activities of Calyon,'' the bank said. ``The relevant disciplinary measures have been taken vis-a-vis the individuals concerned. The trading limit alert and security controls were immediately strengthened.''

The division, run by Marc Litzler, still expects to post a profit for the third quarter after booking the full 250 million- euro cost of unraveling the trade in the period, the bank said. Profit will be well below the third quarter of last year, Calyon said, when the bank posted net income of 381 million euros.

The statement didn't identify the individuals involved or provide details on what action had been taken against them.

The trading position was ``built up by a trader without authorization which went well beyond the authorized limits of the bank,'' spokeswoman Louise Tingstrom said in a telephone interview. She declined to comment further.

July, August

The disclosure of the trading loss comes less than three weeks after Credit Agricole reassured investors about the impact of the subprime meltdown by saying results at its securities arm in July and August were ``similar'' to the same period last year.

Credit Agricole, France's second-biggest bank by assets, reported a 0.6 percent increase in second-quarter profit on Aug. 30. While the earnings surpassed analysts' estimates and boosted the shares by 2.3 percent that day, they lagged behind the pace of growth at the bank's two largest French competitors.

BNP Paribas SA, France's biggest bank, reported a 20 percent increase in profit for the period, while Societe Generale SA said earnings climbed 33 percent.

Calyon's disclosure comes five months after Bank of Montreal, Canada's fourth-largest bank, said wrong-way bets on natural gas resulted in a pretax loss of about C$450 million ($405 million).

Credit Agricole, set up in 1894 to provide financing for farmers, is controlled by a group of 41 regional banks from areas including the French Caribbean and Normandy in northern France. The bank acquired Paris-based Credit Lyonnais for about 16 billion euros in 2003, and named the combined investment banking operations Calyon.