COLUMNISTS BNP Paribas did not escape Monday’s broad sell-off of European banking shares. And this in spite of its opportunistic weekend swoop on the Belgian and Luxemburg assets of Fortis, transforming the French bank overnight into the eurozone’s biggest in terms of deposits.
Many of BNP’s rivals would probably grudgingly have to agree that the Belgian deal clinched by the French bank’s chairman Michel Pébéreau and its chief executive Baudouin Prot seems pretty smart. For in theory at least it looks like a dream acquisition – a relative bargain transaction using the bank’s own shares and limiting its cash outlay, cast-iron guarantees from Belgium and Luxemburg, and the presence of these two governments as stable shareholders with every interest to ensure the long-term success of the deal.
So why did the French bank’s shares follow the herd and fall on Monday? Perhaps investors are worried that the ultimate success of the Belgian deal, for all its guile and opportunism, could still hinge on a couple of crucial issues. The first is that BNP is indeed as strong as it seems, and that it will continue in such a nonchalant way to weather the credit crunch and the derivatives crisis that has brought down rivals.
The second concern is that the market’s crisis of confidence does not ultimately also engulf the French bank. It has so far resisted the US-bred subprime contagion better than most eurozone establishments. Its shares have only lost about 4 per cent since the start of this year, compared with about 32 per cent for the European banking sector as a whole. But in these panic-stricken days, even the smallest sign of weakness can be blown out of all proportion.
Even so, Mr Pébéreau and his chief executive are looking clever. They pulled off a similar opportunistic ploy three years ago when they snatched Italy’s Banca Nazionale del Lavoro under the nose of Spain’s BBVA. Although integrating the new Italian affiliate into the BNP system has proved more arduous than expected, the deal gave the French bank a rare opportunity to expand in the lucrative Italian retail banking market.
Mr Pébéreau, who often complains about the difficulty of launching cross-border banking deals in Europe because of the old continent’s lack of unified consumer credit rules, wasted little time when the Belgium opportunity arose.
Last week, he offered to buy the whole of Fortis. But the Belgian, the Dutch and Luxemburg authorities felt the BNP price was too low. So when the Dutch decided unilaterally to nationalise the Dutch side of Fortis, BNP saw a fresh chance to propose a revised and sweetened offer to the Belgian and Luxemburg governments worried that the Fortis rescue could now unravel in their back yards. If BNP last week was seen by many in Belgium as the traditional big French vulture snapping up Belgian assets on the cheap, it has been transformed over the weekend into a shining white knight.
It is, of course, a calculated gamble on the part of Mr Pébéreau. But then, he seems to be holding some pretty strong cards. BNP did not plunge into the mortgage mania like everybody else. In part, this may have been due to his visceral dislike for property markets, having been burnt before years ago. Whatever the truth, his conservative strategy has given BNP the edge in the next inevitable round of banking consolidation.
Far from shipshape
Assessing the health of Chinese shipbuilders is notoriously difficult, not least since hundreds of privately held shipyards have sprung up in recent years. Many analysts therefore restrict their monitoring to the biggest and more established companies, which are also often the least likely to falter as they benefit from state backing.
Yet the more easily measurable indices of shipping activity, starting with the Baltic Dry Index, are giving calls for concern. Following the lull of the Beijing Olympics, the expected pick-up has not taken place, raising the question of what ship owners will put in their recently ordered vessels if demand for commodities as well as finished products in the US and Europe continues to fall.
On the bright side, the slowdown could help clear a record order book at larger yards such as those owned by Daewoo and Hyundai, leading South Korean shipbuilders that, unlike their more tight-lipped Chinese rivals, have recently announced cancellations for some container vessels and chemical ships. Insiders also insist that the overall level of cancellations so far this year, at about 200 units, represents only about 2 per cent of vessels on order worldwide.
But in an industry that relies heavily on banks to guarantee contracts and fund construction, the failure of a large yard, or even the collapse of a big transaction, could spark a wider crisis of confidence that will hurt, particularly recently developed yards. Which is why the sector should worry about the recent events in Korea, where Daewoo Shipbuilding lost 15 per cent of its stock market value on Monday, jeopardising what was expected to be a landmark transaction for the industry and Korea Inc.
