Crédit Agricole: The Slumbering Giant Is Up--and Hungry

The French financial giant's IPO could help make it a global player

Crédit Agricole Group has often been dismissed as the slumbering giant of French finance, a rural colossus that until a few years ago showed no sign of waking up. The mutually owned bank still relies for 70% of its income on its 7,700 retail branches--many of them patronized by the farmers that gave the bank its name.

But Crédit Agricole is now wide awake and looking for opportunities under its ambitious new executives, President Marc Bué and General Director Jean Laurent. On July 6, the duo made their boldest move yet: They announced that Crédit Agricole's central institution, the Caisse Nationale de Crédit Agricole, would be converted into a holding company that would raise up to $5 billion by listing 30% of its shares on Paris' Euronext stock exchange. And the money won't be used to renovate bank branches. Bué will go after Crédit Lyonnais, the privatized, scandal-tainted bank that is now considered takeover bait. Bué is also said to be interested in buying Germany's Commerzbank, though a Crédit Agricole spokeswoman denies it.

As these possible moves make clear, Agricole is determined not only to become the French national banking champion but also to position itself as a world player. "We want to be a leading French banking group with a European presence and global ambitions," says Bué.

No one doubts that Crédit Agricole has the resources to compete. The bank boasts $455 billion in assets--sixth in the world by that measure--and $24 billion in capital and reserves. It has expanded rapidly in recent years, pushing into investment banking and snapping up strategic stakes in a range of European financial groups. Agricole is the largest shareholder in Italy's powerful Gruppo IntesaBci, with a 14% stake. In 1996, it bought Banque Indosuez, the French investment house with a strong presence in asset management and emerging markets. This January, it added to its portfolio a 10% stake in Lazard Frères & Co., the international investment bank, and Bué is said to want another 20%. "Their strategy is to expand fast so that they will be one of the banks that dominate European finance," says Laurent Kadoche, an analyst at Natexis Banques Populaires in Paris. "They know there is a scramble for survival out there."

BIG BUREAUCRACY. But Agricole is not yet where Bué and Laurent want it to be. Agricole, which was set up by farmers for farmers in the late 19th century, still needs to conquer a stolid corporate culture and become more flexible, competitive, and aggressive. Laurent recently told senior colleagues that partial demutualization--the process of changing a company's ownership structure to one based on shareholders--would "galvanize" the group.

True, but right now, the group still has a tendency to lumber along. The laborious process needed to get approval for the Euronext listing is an example of the bank's bureaucratic culture. Each of the presidents and general directors of Agricole's 48 regional caisses--powerful local operating units--had to agree to the listing. It took 2 1/2 long years to persuade them.

But Bué and Laurent had the backing of Laurent Fabius, Minister of Economy, Finance, and Industry, which carried much weight with some caisses. And they won over the other naysayers by tantalizing them with the prospect of taking over Crédit Lyonnais, France's third-largest listed bank. Acquiring the $162 billion-in-assets Lyonnais could transform Agricole into a key European player. Lyonnais, which was privatized in 1999, came into play on July 8, when most elements of a two-year-old pact that prevented the bank's six major shareholders from selling their holdings expired.

Officials at Agricole's strikingly modern high-rise headquarters in Paris insist that there are no firm plans to bid for Lyonnais, but it's widely known to be at the top of Bué's agenda. "That's why he pushed for the [offering]," says a colleague. Lyonnais boasts vibrant retail and asset-management divisions and a solid investment banking operation. Acquiring it would give Agricole a lift in the French corporate market.

Any Agricole bid for Lyonnais will come early next year, within weeks of Agricole's initial public offering, which is scheduled for the end of December, after Agricole undergoes its restructuring. As part of that process, the regional caisses will reduce their stakes in the new holding company, CNCA, from 90% to 70%. CNCA will then take stakes in the caisses. The delay in setting up the deal may have a payoff: By yearend, market conditions probably will have improved, allowing a better chance for a successful float.

If Bué does bid for Lyonnais, he will almost certainly be opposed by Lyonnais Chairman Jean Peyrelevade, who wants to keep his bank independent. It's also likely that Allianz Group, the huge German insurer that will control 10% of Lyonnais' stock once Allianz' merger with Dresdner Bank is final, would respond with its own takeover move. Allianz wants to use Lyonnais' branches to sell mutual funds and other long-term savings products in the fast-growing French market. The word in Paris is that Peyrelevade would opt for Allianz as the lesser of two evils. "He thinks Lyonnais would retain more independence under Allianz," says a banker close to the action.

LEGAL TANGLE. Peyrelevade's grip on his bank, however, has been weakened by allegations that he covered up violations of U.S. banking laws by senior Lyonnais executives in the early 1990s. U.S. authorities are now considering legal action against the bank's U.S. branch. The bank could be hit with a heavy fine, if not worse, and Peyrelevade might be forced out.

More important, Finance Minister Fabius is said to favor folding Lyonnais into Agricole. He has discussed the possibility of selling the state's 10% stake in Lyonnais to Agricole, which already has 10%. "Fabius is keen for Lyonnais to stay in French hands, and he wants France to have a powerful banking champion," says a Finance Ministry official. "If Agricole buys Lyonnais, he'll get what he wants on both accounts." Banque de France, the central bank, is also said to want to keep Allianz out. Given the sway that both institutions have over France's financial sector, it's likely they will get their way.

Lyonnais would be a big mouthful for Agricole to swallow, but it won't satisfy Bué's hunger. "Once it's listed on the bourse, Agricole will have the money as well as the ambition to continue growing," says Nick Dove, an analyst who follows French banks for UBS Warburg in London. "It definitely has pan-European pretensions." Look out, world. Here comes the farmer's bank.

By David Fairlamb, with David Vannier, in Paris

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