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6 | September 2009 | ifr special report FRANCE “ Grabbing the nettle


French banks have survived the credit crunch relatively well – certainly better than many of their Anglo-Saxon rivals – but two banks in particular stand out. SG and BNP have been beneficiaries of industry consolidation, thinning out the number of rivals, while both boast diverse product lines which they insist can be delivered to clients in an integrated way. There is an air of optimism in Paris, as Justin Pugsley reports.


The French state set aside some





€40bn for capital injections into French banks and €320bn for loan guarantees.In exchange for state help, French banks are expected to support domestic lending and show bonus restraint.


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NP Paribas and Socgen have emerged as the strongmen of the French financial scene. Both have promising outlooks, having gained market share and started the process of expanding their businesses, to maintain global ambitions. They also happen to be the country's leading investment banks. Domestic rivals Calyon and Natexis


have not come out so well. They invested in complex toxic mortgage assets and are now having to work through those problems before they can consider going back on the offensive.


The French state set aside some €40bn for capital injections into French banks and €320bn for loan guarantees. BNP Paribas, for example, borrowed €5.1bn, principally to strengthen its balance sheet rather than to “save” it. In exchange for state help, French banks are expected to support domestic lending and show bonus restraint. The top six banks have all tapped the state for funds. “The management of BNP Paribas have done a very good job,” said Ingo Frommen, an analyst with LBBW. “They have built up very successful fixed income and derivatives businesses.” The bank has also avoided any significant exposure to toxic assets, which has left it in a strong position, he added. “Buying the operations of Fortis was a very good move,” said Christian Hamann, an analyst with Hamburger Sparkasse, of BNP Paribas’ acquisition of the bank’s Belgium and Luxembourg operations for €14.5bn, overnight turning it into the Eurozone's largest deposit taking bank. “It widened their deposit base while strengthening their investment banking business.” As of June 30, the group had €540bn in deposits and €700bn worth of assets under management. It's tier one


capital stood at a respectable 9.3%, compared with 7.8% on December 31, 2008.


In a further sign of strength, the corporate and investment banking unit reported a pretax income of €1.145bn, compared to €523m in the second quarter 2008. Over the same period revenues were €3.351bn, up 81%, largely on the back of a stunning performance by the fixed income unit. Indeed, Jaap Meijer, an analyst with Evolution, cites the performance of CIB as justification for giving BNPP a buy rating. “What was missing was the physical oil and gas trading, but the Fortis acquisition brought that with it,” said Alain Papiasse, head of investment banking with BNP Paribas. This complemented the bank's existing commodities derivatives and finance business, he said. The oil and gas business is one of BNPP's success stories, having grown strongly over the last five years. However, BNP is unlikely to make another purchase of this size for some time: it is cautious about making big “transformative” acquisitions, said Papiasse.


As part of a more organically driven growth strategy the bank maintains a wide range of products, said Papiasse, with particular emphasis on its cross-selling abilities. This is helping to support the divisions that have been hardest hit by the slowdown, such as equity derivatives. “We want to be ready for when the market comes back, so we do not want to lose know-how in the meantime,” said Papiasse. This is typical of the attention BNP Paribas has paid to positioning itself for the new post credit-crunch world. It is reorganising its businesses in various territories into larger regional groupings, and is sticking close to its customer base with a view to building stronger client relationships.


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