International Business: Deals
The Long Reach of HSBC
Buying CCF puts the British bank firmly in the euro zone
British bank HSBC Holdings PLC stunned the market with its stealth $10.5 billion acquisition of Credit Commercial de France on Apr. 1. Until that day, most people had assumed that Dutch bank ING Group would be buying CCF. But while competitors dithered, the decisive HSBC Chairman Sir John R.H. Bond quietly landed Europe's biggest crossborder bank merger to date. He's the first assailant ever to breach the walls of Fortress France, taking a big, listed French bank into foreign control. And by snaring CCF, Bond has moved a great deal closer to his long-term goal of building the world's foremost financial services company.
Since becoming chairman in 1998, Bond has steadily broadened HSBC's reach. He wants the bank to cross-sell a wide range of products around the globe, including mortgages, insurance, mutual funds, and credit cards. CCF's position as a leading pension-fund manager in Brazil, for example, will strengthen the group's retail franchise there. Above all, the CCF deal, which should be completed by midyear if French authorities approve it as expected, gives HSBC its first sizable foothold in the euro zone--which Bond thinks is a must. "You cannot be a credible player in the euro zone if you don't have a significant on-the-ground presence," he says. CCF is one of the most profitable European banks, with an annual return on equity over the past 13 years of 19% vs. average returns for French banks of about 14%.
The CCF deal is much more about giving HSBC's future growth a lift than exploiting cost cutting. Bond is aiming for only a modest $143 million in cost savings. Instead, he's looking for a big boost to revenues in the years ahead from his new French operation. CCF's focus on an affluent clientele, for example, neatly dovetails with Bond's strategy of building up HSBC's asset-management portfolio. With its 10% share of the French private banking market, CCF will add about $54 billion to HSBC's $180 billion in assets under management. "CCF is a very good-quality bank whose businesses are an excellent fit with HSBC's," says Salomon Smith Barney European banking analyst John Leonard.INTERNET PLAY. Unlike his predecessor, Willie Purves, Bond has shown a willingness to pay top dollar for top quality. That's one reason he was able to snatch CCF out from under ING, whose Chairman G.J.A. van der Lugt was reluctant to pay a premium to clinch the deal. As with HSBC's $9.9 billion acquisition of the late Edmond J. Safra's Republic New York Corp. and Safra Republic Holdings last year, the polished, 58-year-old chairman is once again under fire for overpaying. Bond disagrees: "If we were to build this kind of high-end private banking business from scratch, it would take a minimum of 10 years and a vast amount of capital."
The French bank will also play a central role in Bond's attempt to build a European Internet bank. CCF owns an Internet consumer-credit company and an online brokerage, Webbroker, in France. It's a strategy being pursued by many of HSBC's competitors. Having failed to find suitable merger partners, ABN Amro Holding and Credit Suisse Group both are using the Internet to reach across borders. Meanwhile, Spain's Banco Bilbao Vizcaya Argentaria gave up on an alliance with Italy's UniCredito Italiano and in March acquired the Dublin Internet bank, first-e.
Indeed, the next big banking deal might not involve brick-and-mortar operations. It might not even be between two banks. But it will surely be motivated by the most conventional of ambitions: to be Europe's leading financial institution.By Kerry Capell and Stanley Reed in London