Credit Agricole, the top-tier French financial services group, has been hit by a sharp decline in annual profits after its investment banking arm, Calyon, took a €3.3 billion impairment charge as Europe's capital markets continue to be rocked by credit turmoil.

Some €700 million of the charge came in the fourth quarter as Calyon wrote down parts of its exposure to embattled American monoline insurers - the underwriters of company bond issues whose credit quality has come under intense scrutiny.

The bank disclosed total exposure to US monolines of €7.2 billion.

Rene Carron, Agricole's chairman, initially appeared to dash hopes the bank might make a bid for stricken domestic rival Societe Generale, which has been brought low by a rogue dealing loss by Jerome Kerviel, a trader.

It is understood that Agricole sought advice from Lazard, the investment bank, and Calyon itself about whether it should proceed with a bid for SocGen. Agricole rival BNP Paribas has also been tipped as a potential bidder.

“We have built a solid model. With its sound capital base, the group will make organic growth its priority and it is not considering any significant new acquisitions,” Mr Carron said.

But sources in France said that, while Agricole had ruled out a standalone bid for SocGen, it "would not remain indifferent" if BNP Paribas or a domestic rival became involved.

France's largest retail bank reported a 16.8 per cent slide in net annual profits for the year to the end of December to €4 billion after Calyon's fourth-quarter charge forced the investment bank into a three-month loss of €857 million.

Calyon's quarterly performance was "severely affected by the crisis in the structured credit markets", Agricole said.

Analysts had been forecasting losses at the investment bank of about €650 million according to advance polling carried out by Reuters.

Today's results at Agricole, which operates as a significant player in the European capital markets, underscore that there are few signs of a let-up in the seizure of credit markets that has taken root across continents in the past 13 months.

Agricole described the current climate as one of "severe international financial crisis". It said that, excluding its impact, net banking profits would have risen by 25.5 per cent and gross operating income would have surged 30 per cent.

The bank said that Georges Pauget, the chief executive, had proposed that the capital gains from two deals carried out in January, including the sell of its holding in Suez, be ploughed into improvements in risk management and control systems at the bank.

The board has back Mr Pauget's plan.

Despite the financial setback, Agricole said it would up the annual dividend by 4.3 per cent to €1.2 a share. The bank's majority shareholder, SAS La Boetie, has agreed to take 80 per cent of the payout in new bank shares.

Agricole shares were 3.3 per cent higher at €17.78.

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