Consolidation is timely for French group

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“Bigger is better,” Baudouin Prot said on Monday in answer to an analyst’s sceptical question about the superlatives tripping off the BNP Paribas chief executive’s tongue in relation to the €14.5bn ($19.6bn) takeover of Fortis bank’s Belgian and Luxembourg operations.

“In terms of market share, deposits and assets under management, bigger is better, especially if you do it at an attractive price,” said Mr Prot.

For Mr Prot, who became chief executive of France’s biggest bank five years ago after Michel Pébereau, who remains chairman, split the roles, the Fortis acquisition is his second big deal after the purchase of BNL, the Italian bank, for €9bn in 2006.

That acquisition reinforced BNP’s position in Europe outside France and although its integration has taken longer than the bank had hoped, the experience gained is likely to help in integrating the Fortis operations.

Mr Prot has repeatedly made clear that he would like more retail acquisitions in Europe, which is why he was keen to point out that the Fortis deal was in line with the bank’s strategy.

The Fortis deal puts BNP comfortably ahead of domestic rival Société Générale, by catapulting it from being the seventh-largest eurozone bank in terms of size of deposits to the biggest, with €586bn of deposits.

It also moves it up from fifth-largest to the biggest private eurozone bank measured by assets under management, with €209bn. BNP will also become Belgium’s largest life insurer, with a 29 per cent market share, and said on Monday that it had no plans to reduce that business.

The increase in asset management was a “quantum leap” for BNP , said Mr Prot and for him, one of the most important attractions of the deal, since asset management “needs limited capital, is highly profitable and has no cycle of risk”.

The deal will shift BNP’s centre of gravity further from corporate and investment banking towards retail and asset management. Asset management will account for 20 per cent of BNP group revenues, up from 18 per cent last year, while retail banking will grow to 57 per cent of the total, from 54 per cent, reducing the size of the corporate and investment bank from 28 per cent of revenues to 23 per cent.

Mr Prot said he remained committed to investment banking, but although BNP might make bolt-on acquisitions to reinforce the business, as it did with the purchase of Bank of America’s prime brokerage unit, “we will never make a big acquisition in corporate and investment banking”.

BNP’s eschewal of a highly-leveraged investment banking business in the investment banking boom has left it as a beneficiary of the global crisis. Its shares are down by just 6 per cent since the start of the year, out­performing the FTSE Eurofirst bank sector by 34 per cent; the best share price performance in the euro­zone, bettered only by HSBC, Europe’s top performer.

Questions have begun to emerge about whether BNP’s traditionally cautious approach might prevent it from capitalising on this advantage.

The Fortis deal, which was hailed on Monday by analysts at Citigroup as “an attractive deal [with] opportunistic timing” allows Mr Prot to reply that he has seized an opportunity without overpaying. On the downside, Belgium and Luxembourg are mature markets, with highly competitive retail banking, so extracting full value from the deal will require hard work.

BNP said its estimate of €500m of cost synergies by 2011 was conservative.

Expanding in a financial crisis might seem risky but the deal helps BNP’s balance sheet. Its 7.6 per cent tier one capital ratio (the key measure used by regulators) will be improved by 0.35 percentage points. This is partly because it will issue 133m new shares and because of the over-capitalisation of Fortis’ Belgian bank; the €174bn in risk-weighted assets it acquires are backed by €16bn in new tier one capital.

Small wonder that analysts at Dresdner Kleinwort described the deal, which only one week ago looked like it had hit the buffers, as a “very good move”.

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