SocGen Like BNP Wins Corporate Vote With Record DepositsFabio Benedetti-Valentini
French banks’ corporate deposits hit a record at the end of 2012, helped by clients like Sebastien Mejean, the co-founder of online jeans retailer Sojeans.
The entrepreneur put most of the 2 million euros ($2.7 million) he raised from an Italian fund in deposits at Societe Generale SA and HSBC Holdings Plc’s French unit. Mejean, like BNP Paribas SA client LVMH Moet Hennessy Louis Vuitton SA, the world’s largest luxury goods company, helped boost such holdings at French banks to 397.5 billion euros as of the end of December.
French lenders had the biggest jump in corporate deposits in the euro area, accounting for 44 percent of the region’s total increase, according to data from the European Central Bank. Burned by their blocked access to U.S. dollar funding and European debt markets at the height of the region’s more than three-year-old debt crisis, French banks went aggressively after such deposits, chalking up in December alone 21.2 billion euros - -almost as much as German banks got in all of 2012.
“This is a confidence indicator,” said Jean-Pierre Lambert, a London-based analyst at Keefe, Bruyette & Woods Ltd. “International companies with euro-periphery deposits probably had some preference to repatriate money with French banks.”
The deposits may provide French lenders -- which report 2012 results starting tomorrow -- with funds to grease the wheels of the region’s economic recovery when it materializes. The inflows also help to bolster their liquidity as new international rules come into play.
Before today, Societe Generale has jumped 11 percent this year in Paris, while BNP Paribas has risen 5.1 percent, outperforming the benchmark CAC 40 Index, which was little changed. BNP Paribas rose as much as 1 percent today to 45.19 euros, while Societe Generale rose 1.1 percent to 31.89 euros.
“Our deposits have had a strong increase over the past months,” Pierre Palmieri, Societe Generale’s head of global corporate financing, said on Feb. 1. “Corporate clients don’t put deposits for seven years; it’s still a short-term source, but good alternative funding to money-market funds.”
Societe Generale, France’s second-largest bank, said last month that complying with a 100 percent Basel III 30-day liquidity ratio this year is “within its reach.” BNP Paribas, France’s largest bank, has said deposits from large companies are “at the heart” of its global corporate banking business.
Societe Generale may report a drop in fourth-quarter net income tomorrow to 80 million euros from 100 million euros a year earlier, according to the average estimate from nine analysts surveyed by Bloomberg. On Feb. 14, BNP Paribas will probably post an increase in profit for the period to 1.04 billion euros from 765 million euros, according to the average estimate of seven analysts in a separate poll.
French corporate deposits jumped 9.7 percent last year, more than 7.4 percent in Italy and 5.1 percent in Germany, data from the ECB show.
The surge in French corporate deposits, which have almost doubled in the past six years, helped the euro area hit a record 1.77 trillion euros in such amounts at the end of December, according to ECB data.
While French deposits grew at the fastest pace among major European nations, such collections also hit records in Germany, Italy, the Netherlands, Belgium, Austria and Finland. They slid in countries including Greece, Portugal, Ireland and Spain.
French lenders must “intensify” their adaptation to new liquidity rules, Bank of France Governor Christian Noyer told bank executives at a conference in January.
Global central bank chiefs last month gave lenders four more years to comply fully with international liquidity rules. Banks in the European Union may need to comply with the rules before competitors in other parts of the world, according to a document obtained by Bloomberg.
The liquidity coverage ratio -- which would force banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze -- is part of an overhaul of global financial rules, known as Basel III, intended to prevent a repeat of the financial crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc.
Societe Generale, BNP Paribas and Credit Agricole SA have since 2011 taken measures, including cutting short-term lending such as aircraft and shipping finance, to rely less on U.S. money-market funds, which dumped French paper in 2011 on debt-crisis contagion concern. Seeking deposits at home is part of that plan.
Banks need to “reinforce their stable-deposit base to be able to use part of these stable deposits to lend long,” Alain Papiasse, head of BNP’s corporate and investment bank, said in November. “This is the big challenge” for economies like France that rely more on bank loans than market funds, he said.
Granted, the swelling of corporate deposits is an indication of the slump in the economy in Europe, with France teetering on the brink of recession and companies sharply cutting back on new investments.
They are putting their money in banks even as interest rates are at their record lows in France and in the so-called core euro area countries. It has enabled lenders to bulk up on their deposits by paying out low rates.
BNP Paribas’s global corporate-banking business in the third quarter added 5 billion euros in deposits from medium-size and large corporations while it reduced lending by 7 billion euros, according to its website.
“It’s rare that corporates leave deposits for a very long term,” said Cyril Meilland, a bank analyst at CA Cheuvreux in Paris, a unit of Credit Agricole. “But a way to take in deposits is via closer cash-management relationships. You manage the flows, and a client leaves the float on your account.”
BNP Paribas, which has about 140 “business centers” to provide lending, treasury management services and market advice to corporate clients from Lisbon to Brussels to Kiev, added about 3,560 corporate clients between 2011 and the first half of 2012, according to a November presentation.
Attracting corporate deposits remains more critical for French banks than for their European rivals thanks to a peculiarity of the country’s financial system.
The existence of tax-free savings and fiscal advantages for life insurance push households to keep most of their money outside bank balance sheets. French households also put most of their 11.6 trillion euros of assets in property investments, data from the French insurers’ lobby group shows.
Although ECB figures put retail deposits at 1.19 trillion euros at the end of 2012, that’s below the 1.39 trillion euros of life-insurance savings that provide income-tax and inheritance tax exemptions, data from the French insurers’ federation show.
That makes chasing corporate deposits even more key as these holdings become cheaper. Societe Generale and HSBC, for instance, were able to convince online jeans retailer Sojeans to deposit money with them in term deposits lasting as long as 36 months and yielding as much as 3 percent.
The term deposits earned Sojeans -- which sold 240,000 pairs of jeans last year -- 30,000 euros, largely covering the retailer’s digital pay-control and anti-fraud expenses.
“The gains were pretty interesting,” Mejean said in an interview. “The banks’ salespeople explained that all these deposits were like fuel the banks could use to lend more or improve their ratios.”
Not everyone is pleased.
“We’re always captive,” said Eric Sitruk, the chief executive officer of Fashion Bel Air SA, a Paris-based clothing company with about 7.5 million euros in funds and production sites in China and Portugal. Sitruk expects returns from Bel Air’s deposits to be five times lower this year than in 2012.
Banks haven’t lowered the cost of lending as much as they cut their payouts on deposits, he said.
“It’s not blackmail, but a well-understood bank practice to tell a client that to grant an additional loan, it would like to have more deposits,” said Christophe Nijdam, a Paris-based analyst at AlphaValue. “French banks, given their difficulties with their liquidity ratios, have insisted with their clients.”