LONDON — The French bank Crédit Agricole said on Tuesday that it nearly had its entire second-quarter profit wiped away as it took a $950 million charge to write off its entire investment in the troubled Portuguese lender Banco Espírito Santo, in which it owned a 14.6 percent stake.
Crédit Agricole, based in Paris, said earnings fell to 17 million euros, or about $22.8 million. That compared with net income of €696 million in the same period last year.
The French bank was one of the largest shareholders of Banco Espírito Santo, which will be split up as part of a €4.9 billion rescue plan announced by Portuguese officials around midnight Sunday. Under the plan, the heaviest losses will be absorbed by Banco Espírito Santo shareholders and some creditors.
Crédit Agricole took a charge of €708 million, or about $950 million, in the quarter as it wrote off its entire investment in the Portuguese bank.
Excluding the Banco Espírito Santo write-down and other items, Crédit Agricole posted net income of about €1 billion in the second quarter.
Crédit Agricole shares rose more than 5 percent in early trading in Paris.
The bank in the 1990s first took a stake in Banco Espírito Santo, which has for decades been run by the Espírito Santo family.
"We can only regret having been misled by the family with which Crédit Agricole was trying to create a true partnership to build the biggest private bank in Portugal," Jean-Paul Chifflet, the Crédit Agricole chief executive, said on a call with journalists on Tuesday, Reuters reported.
In July, Ricardo Espírito Santo Silva Salgado, the family patriarch and former head of Banco Espírito Santo, was arrested and ordered to post bail of €3 million as part of a money-laundering and tax evasion investigation. His arrest came only days after he stepped down from the bank.
As a result of the rescue plan, Crédit Agricole's stake in Banco Espírito Santo remains in the bad bank, but the French bank, with its write down, has essentially determined those shares are worthless.
On a conference call with analysts, Bernard Delpit, the Crédit Agricole chief financial officer, said the French bank had been planning to write off its Banco Espírito Santo stake prior to the events that have gripped the Portuguese bank in recent weeks.
Crédit Agricole didn't participate in a €1 billion rights offering by Banco Espírito Santo earlier this summer, which resulted in it holding a smaller stake in the Portuguese bank.
Soon after, Portuguese regulators found irregularities in the books of Banco Espírito Santo's corporate parent, Espírito Santo International, and determined Espírito Santo International was in "serious financial condition."
Last week, the bank shocked financial markets with a €3.58 billion loss. The bank's earnings report showed how exposed it was to other companies that it had funneled loans to in the Espírito Santo family business empire, whose interests include real estate, health care, energy and agriculture. Since one of its companies failed to repay a loan on schedule in early July, three Espírito Santo holding companies have filed for bankruptcy protection.
Over the weekend, the government of Portugal and European officials put together a rescue package for the family bank in which the government will loan the country's bank resolution fund €4.4 billion of the €4.9 billion cost of the bailout.
The government's intent is to recover the taxpayer loan with the future sale of the newly-created Novo Banco, the entity created in the rescue that will take over Banco Espírito Santo's sound assets like deposits and loans that are likely to be repaid.
The bank's problem assets will remain with the existing bank, which will be shut down over time.
On the journalist call earlier Tuesday, Mr. Chifflet didn't rule out the possibility that the bank might take legal actions related to its stake in Banco Espírito Santo.
The write down of its stake is the latest step back by Crédit Agricole from parts of southern Europe. The bank also has exited investments in Spain and in Greece in recent years.
Crédit Agricole's operations in Italy, which are primarily focused on Northern Italy, remain an important business for the bank. Revenue in Italy was up 5.8 percent to €416 million in the second quarter.
Over all in the second quarter, Crédit Agricole reported that revenue declined 6 percent, to €3.93 billion, while operating expenses rose slightly to €2.77 billion.
During the first six months of the year, Crédit Agricole said that it reduced its annual costs by €64 million, reflecting a reduction of its recurring costs by €415 million since the program began in 2012. The bank is targeting a reduction in its annual costs of €650 million by the end of 2016.
In its corporate and investment bank, net income rose 4 percent, to €261 million.
In its French retail banking arm, net income declined 8 percent, to €235 million, in its regional banking business and fell 9.7 percent, to €145 million, in its LCL unit.
The bank's common equity Tier 1 capital ratio, a measure of its ability to weather financial disturbances, rose to 12.3 percent at the end of June, up 0.6 percent from the end of the first quarter.
"Despite the situation at BES and its impacts on our quarterly results, the group is on track with the path set when we unveiled our medium-term plan last March, leveraging its strengths and financial robustness while continuing its efforts to cut costs," Mr. Chifflet, the Crédit Agricole chief executive, said in a news release.
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