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UPDATE 3-Credit Agricole sends positive signal with return to dividends

* Q4 underlying net profit down 26%

* Bad loans provisions up 58.5% in Q4

* Lender to pay a 0.80 euro dividend with scrip option (Adds more analysts comment on dividend)

PARIS, Feb 11 (Reuters) - Credit Agricole SA signalled its belief that the worst of the COVID-19 pandemic may have passed, with the bank preparing to resume dividends after beating quarterly earnings forecasts.

France’s second-biggest listed lender said it expected economies to start recovering this year from the crisis.

Full-year profit dropped by 44.4% to 2.69 billion euros ($3.27 billion) in 2020 as provisions doubled last year to deal with loans that could turn sour.

“We should, and it is a shared hope, have a quite clear exit from the health crisis during 2021, with the effects that this should have on the economy,” Chief Executive Philippe Brassac told reporters on Thursday.

Credit Agricole also said it planned to pay a 0.80 euro per share dividend for the year, with a scrip option, within European Central Bank recommendations.

The bank’s shares were up 3.52% at 1244 GMT.

Analysts at Jefferies said in a note that the dividend distribution had been a positive surprise.

“Another strong set of results from Credit Agricole in our view, with Q4 underlying net income beating consensus by 44%,” they said. “This is a very strong performance... and should support the shares, especially as they’ve slightly lagged peers lately.”

JP Morgan analysts said the beat was mainly driven by higher revenues in retail and asset gathering, as well as lower provisions. But the main surprise was the capital distribution, JP Morgan said.

SHARE BUYBACK IN SIGHT

According to Jefferies, the dividend with scrip payment option amounted to an earnings payout ratio of 66%. That is ahead of Credit Agricole’s 50% target of earnings return to shareholders.

Credit Agricole said it could then launch a share buyback, representing up to 5% of its capital, to offset the scrip option-induced dilution for shareholders.

Excluding one-offs, Credit Agricole’s underlying net income was down 26% in the fourth quarter of last year at 975 million euros, while revenue was up by 2.2%.

Its cost of risk, which reflects bad loan charges, rose by 58.5% year-on-year to 538 million euros in the fourth quarter. It did not provide guidance for 2021 provisions.

Credit Agricole’s French competitors BNP Paribas and Societe Generale have both said bad loan charges would decrease this year as part of a gradual economic recovery.

The bank, which offered in November to buy third-tier Italian lender Creval for 737 million euros, reiterated it would not change the price. ($1 = 0.8236 euros)

Reporting by by Matthieu Protard and Marc Angrand; Editing by Mathieu Rosemain, Devika Syamnath, Jane Merriman and Jan Harvey

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