Crédit Agricole will scale down its investment banking business after stunning investors with the announcement of a €5.9billion (£4.6billion) capital increase following a new round of sub-prime writedowns yesterday.

The move came as Société Générale, the rival French bank, also declared huge writedowns as the credit crunch rumbled across Europe.

With Crédit Agricole's share price tumbling in the wake of a fresh debacle, Marc Litzler, the chief executive of Calyon, its investment unit, is set to be pushed aside this week.

Mr Litzler, 48, a golden boy in an institution whose core customers are French farmers, is due to be replaced by Patrick Valroff, 59, the head of specialised financial services.

The shake-up comes as Crédit Agricole envisages cutbacks in Calyon, part of a process in which directors promise a return to retail banking and what analysts say is a move away from the risk of international finance.

A source close to Crédit Agricole denied rumours that its investment unit would be sold off, saying that it would shrink, but not disappear.

Crédit Agricole's capital increase, in a rights issue, comes after a further €1.2billion in writedowns linked to the sub-prime crisis after €4.2billion last year - making it the French bank hit hardest by the global financial turmoil.

Although its losses are far less than those of Citigroup, HSBC or UBS, the Swiss bank, they sent a tremor through French financial circles.

“It's very, very bad,” Valérie Cazaban, a fund manager for Stratège Finance, said. “It's one loss too many.”

Other analysts accused Crédit Agricole of failing to come clean about its plight last year. Simon Maughan, of MF Global in London, said: “This is a bank that's been in denial.”

Crédit Agricole said that it would announce tomorrow first-quarter net profits of €892 million - 66 per cent down from last year and worse than most forecasts. Its shares fell 5.64 per cent to €19.56.

Concerns over Crédit Agricole's health were exacerbated by the size of the capital increase, which will dilute earnings per share by up to 22 per cent. The bank said that the move was designed to push its tier-one capital ratio to 8.5 per cent.

However, amid fears that Agricole was preparing for more bad news, Pierre Flabbée, a Landsbanki Kepler analyst, said that this was “a lot more” than required by banking legislation.

Société Générale reported a decline of 23.4 per cent in its first-quarter net profits yesterday and €1.2billion in writedowns in its investment division.

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