La Mortgage Is in the Mail?

French postal service La Poste wants to move beyond plain-vanilla banking and into broader financial products

In many European countries, going to the post office can be a multitask errand. Mail your letters and do your banking, all in one quick stop. That's because in Germany, France, Britain, and the Netherlands, among other countries, the postal service doubles as a private bank. And it's no small-time operation: France's La Poste counts some 28 million customers, making it the country's second-biggest bank behind another government-run bank, Caisse d'Epargne.

According to La Poste, those clients want access to more banking services. French law forbids the post office from issuing most kinds of credit and insurance. But with the three-year contract outlining La Poste's powers up for grabs with the installation of President Jacques Chirac's new right-wing government, La Poste executives see an opportunity. Patrick Werner, executive vice-president for financial activities at La Poste, is lobbying for more freedom. He has recently publicized his desire to offer credit products to a wider range of clients and to sell property and damage insurance.


  If La Poste's customers are happy about that, the other French banks and insurers sure aren't. The clubby French banking world fears the potential of the 17,000-strong post office network at a time that private banks are closing some of their branches to cut costs. And insurers are complaining that new competition from government-subsidized La Poste will suck away their business in an already saturated market.

The two groups are conspiring to try to block the government from giving the postal bank any new responsibility in the contract due by yearend. Their efforts could cripple what La Poste sees as an essential development to ensure their growth. "The enlargement of our financial products range is essential for the renewal of our customer base, with new products for young clients," says Martin Vial, president of La Poste, who points out that 40% of the bank's capital is held by the over-70 crowd.

At best, La Poste is likely to get only part of what it's asking for. In the past, the government has turned down its efforts to sell insurance, including a partnership with French insurer AGF. But it could well end up letting La Poste add to its credit offerings since the postal bank has already broken into that field.


  La Poste contends that additional credit services are crucial in appealing to younger clients. As it is now, French postal banks can issue only limited credit products, such as real estate loans last year totaling $3 billion, to customers with savings accounts -- a requirement that excludes the vast majority of Generation Y clients. "Our clients are like the clients at any other bank," says Werner. "Only we can't offer them a complete line of products." But the bank's goal of offering credit to customers who haven't stashed money away provokes anxiety among other French banks. They counter that La Poste should then be subject to the banking ratios that govern the sector.

La Poste's appetite for growth doesn't stop there. On June 25, it caused a storm at the French Federation of Insurance Companies meeting by declaring its intention to offer property and damage insurance, in addition to its current life insurance products. By targeting France's growing baby boomer population, La Poste hopes to increase the client base that has held steady since 1990.

"The damage insurance market is completely saturated," worries an insurance insider. "It will have a disastrous effect on the 15,000 general insurance agents working in the country and small towns." Werner tries to calm their fears, saying, "It's impossible to imagine that even in the long term we could take any more than a few percent of the market."


  Insurers aren't convinced. They've teamed up with the bankers to launch a lawsuit with the European Union, alleging abuse of La Poste's network advantage and illegal cross-subsidies between competitive and governmental activities. In the meantime, the two groups are focusing on the renewal of La Poste's government contract, prolonged by default after its expiration at the end of 2001. If it contains no specific authorization for La Poste to distribute credit and property and damage insurance, then the postal bank can forget about those development dreams, leaving the other banks and insurers to breathe easier.

But reports from behind the scenes say Werner has been hobnobbing with Michel Pebereau, the president of BNP Paribas who was recently chosen as the president of the French Banking Federation, trying to get the club on his side.

That consorting with the other side is what makes the relationship between La Poste's banking arm and French bankers and insurers so unusual. In Germany and the Netherlands, the national post cordoned financial activities into a special subsidiary and privatized it. In Italy, financial activities of the national post are too small to threaten other Italian banks. In these instances, France's neighbors have discovered, with separate structures for the post office and the bank, there is less temptation to grumble.

Would La Poste jump for one of those solutions? President Vial says the banking-services division will never break off from La Poste. At the same time, he knows he must pursue partnerships with other financial groups to benefit from their savoir-faire. Something has to give. So, it's a good bet the government will seriously consider giving La Poste at least some of the changes it's asking for this go-round.

By Anne Drif and Christina White Passariello in Paris

Edited by Thane Peterson

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