BNP Paribas’ Jacques d’Estais, appointed global head of corporate and investment banking in December 2005, is humorous and understated. Even if he does not seem quite ready for the spotlight into which this new role will push him, he is ready for what the job entails and says that “settling in” will be more about fine-tuning a successful business than making big changes.
“BNP Paribas is already a very efficient machine. It is a global operation that is well balanced between retail banking, corporate and investment banking (CIB) and asset management. This is a very stable business mix that gives the bank a lot of power in winning client business,” he says.
European emphasis
In deciding the strategy going forward, Mr d’Estais is mindful of the bank’s roots and the importance of a ‘home’ market. He stresses that BNPP is a European house with a global presence. It is not, he adds, a ‘French’ bank, as people often refer to it.
“Only 15% of CIB revenues come from France. We do not live or die in France,” he says. “Europe, on the other hand, accounts for 50% of CIB revenues and we will continue to grow and maintain that home market.”
Mr d’Estais is excited by the growth of the group as a whole and the potential benefits that acquisitions in new markets can offer CIB. BNPP bought a Turkish bank last year, is finalising an acquisition in Ukraine and recently entered the Italian market with its acquisition of BNL. He says that these deals add momentum to the bank and enable it to cross-sell products.
“These acquisitions are great news for CIB because they increase the power of the overall machine. They increase our access to clients and enhance our ability to cross-sell products. It really feels like we are part of a growing force,” he says.
While Mr d’Estais maintains that any changes he makes at CIB will be small, he acknowledges that there are plans in the pipeline for speciality finance and capital markets – moves that perhaps betray his roots in capital markets and derivatives, as well as take the bank down the same path as many of its competitors.
“It is in both of these areas that we add more value to our clients and therefore generate higher margins,” he says.
Areas of growth
In speciality finance, BNP Paribas will build its presence in areas such as project and export finance, real estate financing, and commodities and leveraged finance. “Non-vanilla lending,” says Mr d’Estais.
In the bank’s capital markets division, he says the focus is on expanding an already strong franchise. In equity derivatives, for example, Mr d’Estais says there are 17 development projects already under way this year, but that overall, the bank is committed to growing all its derivatives businesses in 2006. All projects are carefully evaluated to ensure viability. “We have a very structured approach to business building,” he says.
Mr d’Estais reveals he has a similarly pragmatic approach to league tables. “I am not a big fan. You can always spend more money and be higher up the table. But customers know your capabilities and give you business if they trust you. And our first objective is the bottom line, not the league tables.”
In fixed income – where the bank ranks in the top three for euro-denominated bonds according to data provider Thomson Financial’s league tables – BNPP plans to add to its derivatives marketing and distribution capabilities, and to develop its securitisation platform globally by leveraging its lending relationships.
The bank will also continue to build its mortgage business in the US, where Mr d’Estais argues that, even if the mortgage business there has peaked, there are still fruitful opportunities.
“We’re working from a relatively small base, but, if you build carefully, there is always room to take a share of such a big market and make money,” he says.
Does this build-up mean BNP Paribas is going to allocate more capital to speciality finance and capital markets?
“In terms of human capital, yes. It’s a growing business; we will continue to hire,” he says. “In terms of allocating more risk capital, then probably not. Hiring more sales staff to market our derivatives and other products will not change our risk profile across credit risk, market risk or operational risk,” says Mr d’Estais.
Does that mean that the bank does not plan to increase its value-at-risk?
“If you’re asking if we are going to turn into a trading machine that takes a great deal of risk, then no. On the one hand, our value-at-risk is very low; given the size of the business, maybe a little too low, so I wouldn’t have a problem increasing it. But a distinguishing factor of our business is that the bank’s risk is largely our clients’ risk. We have a proprietary trading desk, of course, but it’s not our core business. The risk we take is mainly second-order risk. Ultimately, it comes down to what sort of business you want to be.”
That said, Mr d’Estais does have a fair bit of financial clout at his disposal – CIB has E9bn regulatory capital to allocate across its various businesses.
“Enough to play with,” he says happily. Naturally, the aim is to allocate it to those businesses that generate the best returns across the bank’s three lending areas: plain vanilla lending, specialist financing and capital markets. “The game is to do as little as possible of the first and as much as possible of the latter two,” says Mr d’Estais.
Long-term relationships
But, he stresses, the game is not about massive shifts of capital from one area to another, or from one client to another, in search of the maximum returns. “It’s about fine-tuning. Our business is defined by our long-term client relationships. Any decisions must stem from that basis.”
Geographically, Europe will continue to command the bulk of the balance sheet in the near future. But Mr d’Estais says there will probably be a slow shift of capital allocation towards emerging markets to reflect the pace of growth.
At BNP Paribas Group as a whole, emerging markets have already been identified as one of the bank’s nine key profit centres. – areas where profits grew by more than 15% last year, (also included in this group are CIB businesses, equity derivatives and ECEP – energy, commodities, export and project). Mr d’Estais says the bank is in a strong position to capitalise on emerging market companies’ needs for capital and their increasing comfort with sophisticated financial technologies.
“We have a long-standing presence in many emerging markets, including Russia, Asia, Latin America and Africa, but we still have more to do. For example, we are keen to make the Asia Pacific region a real core market for the bank. And we can definitely improve our cross-selling in those markets,” he says.
The latter, which is a target throughout the firm, is more to do with organisation than relationship-building, he adds.
“Historically, the bank was organised along product lines and we have gone a long way towards reorganising it around client needs, but we can still do more to improve the way that people work together internally to generate business.
Mr d’Estais knows that he took over CIB at a fortuitous time – 2005 was a record year, in which CIB net banking income rose by 16.3% to E6.4bn. This was driven by 18.9% growth in the financing business lines and 14.5% in the capital markets business. Next year will be the first test of his stewardship.
“Last year we had record results in CIB thanks to Philippe [Philippe Blavier, Mr d’Estais’ predecessor, who retired last December] and we are all working hard to maintain and build on those results through 2006,” he says.
Career history:
2005: Appointed head of corporate and investment banking and member of the Group Executive Committee
2000: Promoted to global head of fixed income of newly merged BNP Paribas, London.
1999: Appointed chief operating officer, fixed income, Paribas, London.
1995: General manager, Paribas Capital Markets, Paribas, Tokyo. Responsible for fixed-income and equity businesses in Japan.
1991: Global head of equity derivatives, Paribas, London.
1990: Global head of interest rate options, Paribas, London
1987: Moved to the treasury department, working on the development of the bank’s commercial paper and option activities
1983: Commercial banking, Paribas Paris, as an account officer in the large corporation department (credit analysis, client relationship)
1978: Graduated from ESSEC with a major in finance
