International Business: France
Trying to Build the Napoleon of Banks
BNP's bid for two rivals may set off a free-for-all
After launching a hostile, $37 billion double bid on Mar. 9 for two rival banks, Banque Nationale de Paris Chairman Michel Pebereau tried his best to make the audacious raid on Societe Generale and Paribas sound less, well, hostile. "It's not a takeover, it's an association of three banks to create a European leader," he announced soothingly during a press briefing at his Paris headquarters. But the stunned management at Societe Generale and Paribas--themselves in the midst of a friendly merger--didn't appreciate the sweet talk. They insisted the prospect of turning the three separate banks into a $1 trillion behemoth was unwelcome and "hazardous."
Even if Pebereau's bid fails, however, the 57-year-old alumnus of the Ecole Nationale d'Administration, France's elite school for technocrats, may have set the stage for a free-for-all that could lead to Europe's first real cross-border bank mergers. For instance, Societe Generale Chief Executive Officer Daniel Bouton may choose to respond to the attack with a hostile counterbid. In that case, Pebereau is likely to turn to a foreign white knight. Some analysts see a potential partner in Spain's Banco Bilbao Vizcaya, Germany's Deutsche Bank--which has been scouting acquisitions in France--or a big Dutch bank such as ING Group or ABN Amro. Analysts also suggest that a three-way merger could lead Paribas to sell its investment-banking activities to a foreign rival. "Now that BNP has crossed an unwritten line, others may be tempted to have a go," says Stuart Graham, bank analyst at J.P. Morgan Co. in London.FEROCIOUS COMPETITION. Paris' resistance to foreign raiders has long thwarted outsiders from entering French financial markets. But that closed-shop mentality is eroding as French banks privatize. Once tightly controlled and often protected by a cadre of influential state officials and ENA-trained technocrats like Pebereau, the banks now face ferocious Europewide competition spurred by the single currency.
Pebereau's drive to engineer a triple French bank merger, creating the world's largest bank, has its merits. French banks are laggards in restructuring and streamlining, and their return on equity, at 11% to 13%, is sharply lower than the 16% to 20% average for European banks. But the deal is still a long shot. Top management and their employees at the two target banks are likely to remain opposed to a mega-alliance. And even if it does succeed, Pebereau faces huge political and cultural obstacles to whipping the giant into a profit powerhouse. Although he has promised some $1.17 billion in cost savings by 2002, bigger gains from streamlining will be slow to come.
Anticipating governmental and union resistance to layoffs, Pebereau has promised there will be none. Eager to win support for a so-called marriage of equals, he also promised to maintain BNP's and Societe Generale's existing retail networks as separate brands. He has promised, as well, to allow Paribas to remain independent. "If you put three entities together simply to add up capacity, it doesn't make sense," says Frans van Laar, chief banking analyst at ING in Amsterdam.BUILT-IN SHRINKAGE. Pebereau and his investment bank advisers at Lazard Freres insist the jumbo bank would reap big savings through back-office consolidation and computerization and other cost-cutting. And although massive layoffs are politically incorrect in France, observers point out that BNP and Societe Generale will see their employees' roles shrink over the coming years, since more than 25% of employees are older than 50 and will start retiring in big waves, reducing staffing by 3% to 4% beginning in 2004.
One ace in Pebereau's hand is Claude Bebear, chief executive of insurance giant AXA, who supports the deal and would hold roughly 5% of the combined banks. Bebear is the largest shareholder at both BNP and Paribas--and was slated to become a board member at Societe Generale to oversee the imminent fusion of the two banks. Nevertheless, Pebereau's bid could launch a clash of egos. BNP would be paying a rich premium of 14% and 18%, respectively, for SG and Paribas. That could anger its big shareholders.
In addition, Societe Generale's management and employees are still fuming over the unsuccessful raid by BNP 10 years ago of Pebereau's older brother Georges, then at the helm of BNP. Societe Generale employees, who are the bank's largest shareholders with 8% of the shares, issued a statement on Mar. 10 calling the takeover bid "grotesque." Pebereau, who feared being sidelined by a friendly SG/Paribas merger, has turned a bad situation to his advantage. But the suave executive may find his bid unleashes more tumult than he bargained for.By Gail Edmondson in Paris, with Thane Peterson in Frankfurt and William Echikson in Brussels