BNP Paribas Group
BNP Paribas Group
BNP Paribas Group
Incorporated: 1966 as Banque Nationale de Paris
Sales: EUR 32.6 billion (US$31.05 billion) (1999)
Stock Exchanges: Paris
NAIC: 522110 Commercial Banking; 522120 Savings Institutions; 522293 International Trade Financing
BNP Paribas Group is the fruit of the 1999 merger between two of France’s most influential banking groups, the retail-oriented Banque Nationale de Paris and Banque Paribas, traditionally focused on the institutional sector. The newly merged group is France’s largest bank and among the top five European banks (and number two among euro-based banks). Apart from its retail and institutional banking services and operations in France, BNP Paribas also trades internationally in more than 85 countries, including in the United States through its control of Bane West. The banking group is also active on the Internet, through its retail brands Banque Directe, Cortal, and BNP Net, and its corporate brands BNP Net Entreprises, Issue Master, and Bond Click. Led by Chairman Michel Pebereau and President Baudouin Prot, BNP narrowly lost a bitter battle to take over rival French retail bank Société Générale at the same time as gaining control of Paribas, which would have created the world’s largest bank and the first to achieve assets over US$1 trillion. Despite the backing of the French government, the takeover plan failed—for the time being, at least. Given the widespread chauvinism of the European banking community, eager to maintain national control over their leading banks, a future merger between the two French banking giants could not be ruled out as a possibility.
Rise of a Banking Leader in the 19th Century
Banque Nationale de Paris (BNP) was formed in 1966 by a merger between two long-established French banks, the Comptoir National d’Escompte de Paris (CNEP) and the Banque Nationale Pour le Commerce et l’Industrie (BNCI). In the 1980s, it was one of the largest financial institutions in France.
The Comptoir d’Escompte was founded in 1848, primarily to rescue Paris businesses from difficulties in obtaining financing. In 1854, after the crisis had passed and the bank no longer had a special mission, it became a commercial institution, greatly increasing its capital and range of activities. Although it continued to concentrate on commerce in Paris instead of expanding by forming local branches, the Comptoir d’Escompte did establish itself in French colonies and foreign countries, becoming seriously involved in copper speculation. The bank was very active in the wool trade, and for many years was the only foreign bank in Australia. It was also one of the leading banks in India, and had a significant business presence in London and Brussels. Unfortunately, the bank soon spread itself too thin and, by the late 1880s, its liabilities were of such gigantic proportions that the president, Denfert Rochereau, chose to commit suicide. The Bank of France and others in the banking community came to Comptoir d’Escompte’s aid, meeting its liabilities and repaying its loans. Out of these ruins, a new deposit bank called Comptoir National d’Escompte de Paris arose in 1889.
Only a short time passed before the bank had recovered its health. Although it kept its interests abroad, its growth now focused on the French provinces. By 1920, it had opened 223 branches, and had twice that many by the end of the decade. During the Depression, expansion slowed, and things improved little during World War II. In 1946, along with the Bank of France and three other major deposit banks (including BNCI, with which it would later merge), CNEP was nationalized as part of the government’s postwar recovery plan. This plan also included legislation requiring banks to identify themselves as investment or deposit (commercial) banks. Altogether the plan created a more specialized and concentrated banking system and gave the government better control over the distribution of credit. The nationalized banks kept the same personnel, characters, and administrative autonomy that they possessed before nationalization, but representatives of state agencies joined their boards of directors. With nationalization, CNEP was assured a central position in the French financial system, and this helped it grow at a strong pace, especially during France’s boom years in the 1960s. Nonetheless, throughout the 1950s and 1960s, CNEP remained smaller than the other nationalized banks.
BNCI began as the Banque Nationale de Crédit in 1913, founded by a deposit bank, the Comptoir d’Escompte de Mul-house (which was founded at the same time as CNEP and for the same reason) and an investment bank, the Banque Fran9aise pour le Commerce et l’Industrie. By absorbing several smaller banks and opening new branches, it grew geographically at a rapid pace. At the end of World War I, it was the fourth largest French bank. In the 1920s, Banque Nationale de Crédit merged with the Banque Franchise pour le Commerce et l’Industrie. But the connection was badly timed, since the investment bank was heavily involved in long-term lending to industry, and the economic chaos of 1930 precipitated its ruin. Eventually the minister of finance guaranteed the bank’s deposits through the state in order to prevent a panic. In April 1932, with the help of several larger banks, the Banque Nationale de Crédit was resurrected as the Banque Nationale pour le Commerce et l’Industrie, strictly a deposit bank.
Because the economic chaos of the early 1930s hit local and regional banks especially severely, BNCI was able to grow quickly by absorbing them. In 1940, BNCI established an affiliate, the Banque Nationale pour le Commerce et l’Industrie (Afrique).
In 1946, under the same postwar recovery plan that nationalized CNEP, BNCI came under state control. The bank continued to grow internationally and, by the 1950s, it had branches in London, Madagascar, the West Indies, and Latin America. After World War II, London was an especially important financial center, and England and France were eager to help each other recover economically. In 1947, BNCI transformed its London branch into a separate subsidiary called the British and French Bank, with shares held by BNCI and two British investment firms, S.G. Warburg and Company and Robert Benson and Company. The British and French Bank continued to grow in international territory and assets, and BNCI itself grew much faster than the other three nationalized banks.
In the mid-1960s, along with an imposition of strict lending ceilings to shrink the money supply, the government began to talk about rationalizing banks and insurance companies in an effort to better concentrate the financial sector. In 1966, this led to the merger of CNEP and BNCI and the formation of Banque Nationale de Paris. Henry Bizot was president of the new bank. Since CNEP had retained its strength in Paris and BNCI its strength overseas (it had the widest foreign territory of any French bank), the two banks complemented each other neatly. As a result of the merger, the British and French Bank subsidiary took in the operations of CNEP’s London branch.
BNP’s first year was a productive one. The new bank offered customers several new account options and also lent a large amount of money for equipment and operations in foreign countries. In addition, the bank established the Société de garantie des Crédits à court terme to provide financing for smalland medium-sized firms. BNP’s subsidiary, Intercomi, helped back the plan for the construction of an underground system in Mexico City that year also, and BNP formed, along with four other major European banks, a new financial organization called Société Financiere Europeenne to promote international business through material and strategic support.
In 1968, BNP was one of the first institutions to become involved with Eurocurrency, and its international operations continued to strengthen and grow. By 1970, the bank had reentered the investment-banking business with the creation of its capital arm, Banexi.
From the time of the imposition of frugal credit limits on the French financial system in the mid-1960s, many French banks had been seeking financial expansion outside the country, where the limits did not apply. Since BNP was already heavily involved in international operations, the credit ceilings hurt it less than they did other banks. Throughout the 1970s, BNP continued to be a leader in international dealings, and France’s export strength in the 1960s and 1970s helped the overseas market even more.
In 1972, BNP was one of the first foreign banks allowed to open a branch in Tokyo. In the United States, the Federal Reserve Board gave BNP permission to establish itself in San Francisco with a new institution, the French Bank of California. By then, BNP was the second largest bank in Europe, controlling $9.2 billion in deposits.
In 1974, BNP opened a branch in Chicago, and in 1975 and 1976, it opened branches in Seoul, Manila, Cairo, Los Angeles, Newport Beach, Houston, Toronto, Vancouver, Moscow, and Teheran. In 1977, it opened branches in Diisseldorf, Stockholm, and Amsterdam.
In 1977, BNP followed several other French banks when it opened a trading company in a joint venture with Inchcape and Company, a British trading firm. The new organization was called Compex, and its founders hoped to attract clients from BNP’s branches in 65 countries and from Inchcape’s 450 subsidiaries and affiliates.
BNP Paribas, powerful growth potential and value creation. With its EUR 20 billion in reserves, and its large international presence, the new Group has the means to achieve its ambitions: to become a European leader in each of its markets by seizing the opportunities linked to the euro and to be a major player on the global scale, while continuing to improve shareholder value.
In 1979, Jacques Calvet, who had been BNP’s general man-ager since 1975, was named president of the bank. He had been a member of Cour des Comptes, a distinguished part of the financial bureaucracy that had been in existence since before the French Revolution. Because of the government’s stance on credit ceilings, Calvet continued to fortify BNP’s status as the most internationally oriented of the nationalized banks. The next year, BNP opened banks in Yugoslavia and Niger and planned to open more branches in South America. Soon after that, BNP gained approval to acquire the Bank of the West, based in San Jose, California.
By the 1980s, the nationalized deposit banks were creeping back into investment banking, since government regulations had limited the growth potential of domestic commercial banking. They had been criticized in the 1970s for practicing so much caution that it hindered their growth. By international standards, the state-owned banks were low in capital and high in loans, and investment banking was one way to remedy this. Again, BNP was a leader among the nationalized banks, with its Banexi capital arm for investment already in operation for more than ten years. In 1985, BNP focused on acquiring stakes in small companies, making mergers and acquisitions, and providing advice to business managers. Banexi examined around 150 entrepreneurs’ dossiers that year, and by September it had made 15 investment decisions. In November, BNP introduced a new approach to acquiring a “backup” line of credit. In selling $600 million in notes, the bank offered backup lenders a listed security that they could sell if desired. Before, the backup credit that banks offered each other was non-transferable and did not appear on balance sheets until drawn upon.
Privatized for the Future
In 1986, BNP’s profits rose 52 percent. The new conservative government that came to power that year implemented a privatization program, selling several state-owned companies. One of the first slated for denationalization was Société Générale, one of BNP’s main competitors. Although now the privatization of BNP was also possible, as the largest bank in France it was expected to be the last one sold. In the meantime, the privatization of some 65 companies in 1987 required FFr 300 billion, making it a busy time for banks.
By 1987, Socialists were loudly contesting the government’s sale of nationalized companies, claiming the businesses were sold too cheaply and that the sales favored the government’s political allies. Edouard Balladur, the finance minister, reacted to these attacks by rushing ahead with his denationalization program to be sure to complete several sales before the next presidential election. BNP’s privatization began to look more likely.
In July 1987, in anticipation of a law expected to be passed shortly to allow banks to buy into investment firms, BNP acquired a 54 percent controlling interest in the Du Bouzet stockbrokerage firm in Paris. BNP also organized its own investment company, which appeared on the Paris stock exchange as Compagnie d’Investissements de Paris.
In October, BNP acquired Ark Securities Company, of London, to gain entry into the European equity market. Ark had already gained a secure foothold in European stock markets and was beginning to do business in the Far East. This was the first of several moves BNP made over the next two years to strengthen its ties with England.
Despite its active expansion in 1987, the bank’s profits fell because of a rise in general operating costs together with the dollar’s decline and the stock market crash. The crash also slowed the government’s privatization program and BNP’s turn was pushed further back.
In 1988, the Socialists regained power in the government, and BNP’s chances for privatization were wiped out. The bank faced the problem of finding new ways to increase its capital under the restrictions of the state. To this end, the bank announced plans to issue $400 million in perpetual capital notes and non-voting certificates of investment. The plans were later dropped when it seemed that such an issue would not meet international criteria for increasing its capital-adequacy ratio.
In 1989, BNP opened an office in Budapest in an effort to help joint projects between Hungary and France as well as the businesses of Hungarian state trading companies. That year BNP also took measures to improve its international base in areas other than deposits, focusing mainly on England. It moved its capital markets operations from Paris to London and bought Chemical Bank Home Loans Ltd., a British mortgage operation. BNP increased its involvement in insurance as it had been planning since 1988. Its Natiovie life insurance subsidiary had been a major insurer since the 1970s, and in 1989 BNP forged an alliance with the largest insurer in France, Union des Assurance de Paris, also a nationalized company. The agreement would make the two companies one of France’s strongest financial groups.
Throughout its history, BNP had worked on developing its international range. In the 1980s, that strategy was modified to build the bank into a forceful competitor in global finance as the European Economic Community achieved its unified internal market in 1992. The return of a right-wing government under Jacques Chirac in 1993, meanwhile, once again revived BNP’s privatization hopes—and this time the measure passed.
- Comptoir National d’Escompte de Paris (CNEP) is formed.
- Company is refounded as Comptoir National d’Escompte de Paris.
- Banque Nationale de Crédit is formed.
- Banque Nationale de Crédit merges with Banque Francaise pour le Commerce et l’Industrie.
- Bank is renamed Banque Nationale pour le Commerce et l’Industrie (BNCI).
- CNEP and BNCI are nationalized.
- Merger of CNEP and BNCI forms Banque Nationale de Paris.
- Banque Nationale denationalizes.
- Company gains full control of Banque du Caire.
- Banque Nationale launches hostile takeover of both Société Générale and Paribas, wins control of Paribas.
- Bank is renamed BNP Paribas Group.
The newly private bank stepped up its international expansion in the 1990s, entering such markets as New Zealand, the Bahamas, and Brazil, and gaining full control of Banque du Caire, in Egypt. In 1998, BNP bought control of troubled Peregrine Investment’s business in China, then moved into Algeria, Uzbekistan, Peru, and India. BNP’s acquisition of the Australian stock brokerage arm of Prudential Insurance Company brought BNP into Australia before the end of that year.
The launch of the euro in 1999 had engendered a wave of consolidation activity within Europe’s financial community, sparking a series of mergers and acquisitions across the continent as banks—largely within a national context—sought to achieve sufficient size in the increasingly global market. BNP’s answer to the consolidation had been to enter secret merger talks with rival Société Générale, in which BNP already held a substantial stock position. Yet in January 1999, Société Générale abruptly broke off talks—and announced that it had reached an agreement to merge with the institutional lender Banque Paribas instead.
BNP immediately countered with its own bid—a hostile takeover of both Société Générale and Paribas that would create the world’s largest banking enterprise, and the first bank to achieve assets of more than US$1 trillion dollars. The resulting battle rocked the French business community—where hostile takeovers were exceedingly rare—and, with a bid of more than EUR 30 billion represented the largest takeover bid in French history. BNP received backing from the French government, eager to keep France’s financial power in French hands. Banque Paribas’s shareholders reluctantly agreed to the takeover bid. Yet, after a six-month battle, in which both sides waged a highly visible media war, BNP had failed to achieve the needed share-holder position in Société Générale to complete the doubletakeover.
BNP was forced to withdraw the takeover bid—and then return the 37 percent it had gained to Société Générale—and content itself with its successful bid for Paribas. Merging the two entities began with a name change, to BNP Paribas Group. The new financial services company was faced with the task of combining the retail banking experience of BNP with the institutional investment leadership of Paribas—with many analysts suggesting the key to a successful merger involved allowing Paribas’s 3000-strong team of investors to retain a dominant position in the institutional side of the company’s operations.
While both BNP and Société Générale claimed victory after the takeover battle, most observers remained skeptical that the story would end there. Instead, with the rapid consolidation of the worldwide banking industry, and with both BNP and Société Générale remaining attractive—and even vulnerable—to possible mergers with foreign institutions, the French pen-chant for retaining control of their most vital industries suggested that a future marriage between BNP Paribas and Société Générale could not be ruled out altogether.
Antin Gerance; Arval; BancWest (U.S.A.); Banque de Bretagne; Banque Directe; BNP Factor; BNP Gestions; BNP Lease; Cardif; Cetelem; Cobepa; Cortal; Crédit Universel; Europcar Lease; Klepierre; Meunier Promotion; Natio Assurances; Natiovie; Segece; Sinvin; UCB; UFB Locabail.
ABN AMRO; Citigroup Inc.; Banco Bilbao; Crédit Lyonnais; Banco Comercial Portugues; Dai-Ichi Kangyo; Banco Popular Espanol; Deutsche Bank A.G.; Générale de Belgique; Barclays PLC; HSBC Holdings plc; Caisse d’Epargne; Natexis; Caisse Nationale de Crédit Agricole; Société Générale; The Chase Manhattan Corporation; Wells Fargo & Company.
“BNP Wants to Be the World’s Biggest Bank,” United Press International, March 10, 1999.
Clarke, David, “French Bank War Only Just Beginning,” Reuters, August 29, 1999.
Edmondson, Gail, “The Man Who May Be King,” Business Week International, July 5, 1999, p. 20.
“French Banks Weak As Bid-Battle Dust Settles,” Reuters, August 30, 1999.
Lichfield, John, “New French Super-Bank Scuppered,” Independent on Sunday, August 29, 1999, p. 1.
Rankine, Kate, “The French Revolutionary,” Daily Telegraph, April 17, 1999, p. 31.
“Yes, but Who Won?,” Economist, August 21, 1999.
—updated by M.L. Cohen