BNP Paribas SA, Societe Generale SA and Credit Agricole SA, which spent much of the European-crisis years fixing operations outside France, are now counting the cost of the economic slump at home.
After shrinking units, reinforcing capital and seeking more stable funding sources for their businesses in the so-called euro-area periphery, the banks -- which report first-quarter results starting this week -- are contending with slowing lending growth, rising bankruptcies and doubtful-loan losses in France, their biggest market for deposits and revenue.
With French economic growth stalled over the last two years and joblessness at a record high, the total retail-banking revenue at the country’s top five lenders -- including Groupe BPCE and Credit Mutuel-CIC -- last year declined for the first time in two decades, and 5 billion euros ($6.5 billion) in operating profit from such business may vanish by 2015, according to Munich-based Roland Berger Strategy Consultants.
“It’s the end of an Eldorado,” Fabrice Asvazadourian, a senior partner in Paris for Roland Berger, said in an interview. “It’s an industry that was accustomed to growth, and now there’s a sudden, sharp brake.”
Revenue at the five banks’ French branch networks last year fell about 1 percent on average to 54 billion euros, a Roland Berger study in March shows. Such revenue may slide 1.2 percent on average annually through 2015, according to the study.
BNP Paribas, which was 0.9 percent higher at 42.35 euros as of 11:43 a.m. in Paris, had fallen 0.6 percent this year before today. Societe Generale, which traded 2.6 percent higher at 27.20 euros, had tumbled 4 percent. Both underperformed the benchmark CAC 40 index’s 6.3 percent rise this year. Credit Agricole advanced 17 percent this year to 7.13 euros.
A “transformation” of the retail banking business may be in the cards, said Jean-Francois Sammarcelli, Societe Generale’s deputy chief executive officer, who oversees French consumer banking. The number of branches -- higher than the European average -- may be reduced, banking analysts said.
“Retail-bank profitability is under attack,” said Thomas Rocafull, financial-services director at Paris-based advisory firm Sia Conseil. Higher capital requirements, competition between banks and the deteriorating macroeconomic environment are dragging down bank profits, Rocafull said.
Rising provisions for bad loans are also eroding French retail-banking earnings, even though corporate default levels are lower relative to those in Spain and Italy.
French corporate bankruptcies rose 1.7 percent in the year to end-January, according to Bank of France figures released this month. Provisions for non-performing debt may rise by about 5 to 10 basis points this year for French banks’ retail networks, Natixis SA analyst Alex Koagne said.
While French growth has lagged behind Germany’s over the past two years, Europe’s second-largest economy didn’t enter a spiral of austerity-driven recession like Italy, and, unlike Spain, didn’t suffer a real-estate bubble or banking crisis.
“In terms of corporate defaults, it’s not the same situation as in Spain and Italy,” said Damien Leurent, who oversees the financial sector at Deloitte France.
French unemployment at 10.6 percent remains lower than in Spain and Italy and lending is still rising. Mortgages, the biggest slice of French loans, are up, Bank of France data show, although property prices near record highs, new taxes and macroeconomic concerns have made households reluctant to borrow to buy homes even at rates that are at a record low.
Loans to non-financial clients stood at 1.95 trillion euros at the end of March, an annual 1.5 percent increase, Bank of France data show -- slower than the 4.7 percent a year earlier.
The effects of the cooling retail business may be evident when first quarter results are released.
BNP Paribas, France’s largest bank, may report a 1.37 billion-euro first-quarter net income on May 3, according to the average estimate of 10 analysts surveyed by Bloomberg. That compares with 2.87 billion euros a year earlier, when it included the sale of a stake in property company Klepierre SA.
Societe Generale, which reports results on May 7, may post a first-quarter profit of 342.6 million euros, according to the average of seven analysts’ estimates. That’s below year-earlier profit of 732 million euros. Credit Agricole, also set to publish earnings on May 7, may report a 328.3 million-euro first-quarter profit, according to the average of four analysts’ estimates. That compares with 252 million euros a year before.
Officials at Societe Generale, BNP Paribas and Credit Agricole declined to comment on the retail-banking business trends ahead of results.
At Credit Agricole, while the listed bank was unprofitable over the past two years as it booked Greek losses, net income at its regional-banking branch networks last year rose 3.4 percent to 3.54 billion euros. Profits at its LCL branch network fell 1.8 percent in 2012 to 663 million euros. France’s largest bank by branches gets about two thirds of its deposits from its domestic retail network.
Societe Generale’s French retail bank posted more profits than its corporate and investment bank both in 2011 and 2012.
BNP Paribas’s retail pretax profit in its core countries -- France, Italy, Belgium and Luxembourg -- fell 1.2 percent last year to 4 billion euros, while its corporate-and-investment banking earnings shrank 21 percent to 2.99 billion euros.
Preserving profits at consumer-banking networks is crucial for French banks with the business providing a buffer during the financial crisis against volatile investment-banking earnings.
Until the sovereign debt crisis took hold, French banks used stable domestic retail-banking profits to expand their investment-banking franchises at home and abroad.
French banks spent $165 billion in acquisitions in the decade following the 1999 creation of the euro, with deals mostly in France and euro-area countries, including Italy and Belgium, according to data compiled by Bloomberg.
The sovereign-debt crisis prompted Credit Agricole and Societe Generale to exit Greece and to sell some international businesses to bolster capital.
Societe Generale in March got $1.97 billion selling a majority stake in its Egyptian unit. BNP Paribas in December agreed to sell its Egyptian unit to Dubai-based Emirates NBD PJSC in a $500 million deal.
While they dodged the worst of the sovereign crisis thanks in part to the European Central Bank’s three-year funds to the region’s lenders, France’s three largest banks shrank risk-weighted assets by 128 billion euros last year and cut hundreds of investment-banking jobs to comply with stricter capital rules and respond to a funding drought caused by Europe’s debt crisis.
Now French lenders are reviewing their core operations.
Societe Generale’s Sammarcelli said in February that the branch networks face a “major rupture,” adding that shutting a few “dozen” branches may be part of the “transformation.”
Loan-books may shrink 5 percent on average between now and 2015 and at least 1.8 billion euros in revenue is under threat because of tightened rules on payments, including the effect of the bank reform imposing ceilings on fees for lower-income clients, Roland Berger estimates.
President Francois Hollande, elected last year on a pledge to be tough on finance, is pushing through a law to segregate banks’ riskiest activities, including proprietary trading. The law would also limit fees banks charge on overdrawn accounts and checks in measures meant to protect lower-income clients.
“The risk is to have a counter-productive effect,” Deloitte’s Leurent said. “It might modify the map of bank networks, with possibly branch closings in disadvantaged regions.”
In 2011, the banks employed about 370,000 people, 70 percent of them in retail banking, according to the latest numbers from the French Banking Federation. The banks have about 38,000 branches in France.
France’s largest retail banks may shrink their workforce by 10,000 this year by reducing recruitment and replacing fewer people who retire, Roland Berger’s Asvazadourian estimated.
The lenders may also reduce branches by 2 percent on average over the next years since France has 600 bank branches per million inhabitants, higher than the European average of 450 branches, he said.
“Networks are very dense, especially in Paris and large towns,” said SIA Conseil’s Rocafull. “There is room for optimization.”