BNP Paribas is a French dynamo with healthy cash flows and a robust presence both in Europe and in Asia. A bigger footprint on US soil may be next on the list. Philippe Blavier explains to Geraldine Lambe what BNP Paribas will and will not do to get it.It is sometimes overlooked that BNP Paribas (BNPP) is a European powerhouse. More often, it is the Swiss houses and Deutsche Bank that spring to mind when talking about major European players, and yet according to The Banker’s Top 1000 Banks 2003, BNPP’s market capitalisation outstrips Credit Suisse Group by $13,335m and Deutsche’s by $5469m. In the face of the US giants colonising the European investment banking scene, it can also go unnoticed that BNPP is stealthily consolidating its position in the league tables, and doing so outside of what are seen as core strengths, such as domestic French business and equity derivatives.

Q1 figures show that BNPP now is consistently a top player across many European markets. As bookrunner, it has gone from fifth to second in investment-grade bonds in euros, from ninth to third in Eurobonds generally and from tenth to fourth in all euro-market issues. It is now first in European leveraged loans, fifth in syndicated loans EMEA, tenth in global IPOs and in corporate finance, fourth for international convertible issues.

But some pundits accuse the bank, and several other European players, of failing to capitalise on this continental strength to go global. Many people believe that like HSBC, BNPP could take the securities and investment banking industry by the scruff of the neck. According to Philippe Blavier, CEO of the corporate and investment banking (CIB) division, this view discounts BNPP’s considerable presence in Asia, dating from BNP’s early Asian trade finance operations begun in 1865, and Paribas’ base in Japan.

Equally, Mr Blavier says, the US operations already contribute 20%-25% of CIB’s revenues, although he acknowledges that it is a key market that needs to be developed further. The bank has established itself on the West Coast with its acquisition of BankWest, and CIB has built significant American operations in equity derivatives, fixed income, commodity finance, and to a lesser degree a principal equity business and corporate lending. BNPP last month inked a deal with Zürich Financial Capital Markets to acquire a portfolio of about 140 transactions.

Mr Blavier says fulfilling US ambitions is often not a straightforward task. “The US can be a huge challenge for Europeans,” he admits. It is easy to see how he came to that conclusion; many European banks have gone before with fairly equivocal results. While they have been moderately successful, Deutsche’s US play in its merger with Bankers Trust and Credit Suisse’s acquisition of DLJ, for example, have failed to produce the dynamism that many in Europe expected, or at least hoped.

Looking for opportunities

BNPP has a pretty good war chest since the sale of its 16.2% stake of Crédit Lyonnais. Analysts estimate that this transaction has given the bank at least E4.2bn to spend. If BNPP takes advantage of the current low interest rates to issue lower Tier 1 and Tier 2 capital, analysts also estimate that it could have up to $10bn available for acquisitions. “At group level we are in a position to make a significant acquisition,” says Mr Blavier. “We have a substantial cash flow, a strong capital base and a strong rating. If we had to do an issue of subordinated debt or a rights issue, then we would have no problem placing them. However, there is nothing significant in the pipeline at present.”

BNPP has a very clear acquisition strategy that is rigorously applied. There is no room for egos or trophy purchases. “We are definitely looking at opportunities, but any deal must comply with our acquisition strategy,” says Mr Blavier. “It must either reinforce our existing product line or create a new one.” Here he cites the Zürich acquisition as it builds on BNPP’s core strengths. “It will give us very strong access to the fund derivatives market in the US and this is clearly one area where we needed to beef up our operations.” Similarly, structured leasing specialist Capstar, acquired about 18 months ago, complements its European business. There may be more purchases like these, he says.

Low-risk deals

Mr Blavier also stresses that any execution risk must be minimal and deals must be friendly. “Unless both partners are totally supportive of the deal, you can almost immediately destroy shareholder value in its execution,” he says. “Partners must also share our view of business development built on a matrix of products and regions that enables us to cross-sell. If a firm is rooted in a silo approach, then we would not be able to reconcile the two cultures.”

In the primary equity market particularly, the US banks jealously protect their home territory, says Mr Blavier. He likens the virtual American stranglehold over domestic business as an oligopoly in which US banks dominate relationship and distribution networks. “To be a force in US equity underwriting and distribution, you have to make a huge commitment in terms of capital, which can be disproportionate to the market share that can be achieved and the profits that can be made,” explains Mr Blavier.

That said, BNPP had in fact been pursuing an agreement with a US boutique under which the partners’ equity businesses would be combined. Tragically, the firm was devastated by the dreadful events of 9/11, and the deal had to be cancelled.

BNPP continues its focus on steadily strengthening its European operations. Analysts say it has achieved the highest cost efficiency in key business lines as well as asset quality among French banks – largely benefiting from scale economies resulting from the BNP and Paribas merger – but question whether cost-cutting can contribute anything else to the bottom line. Where is revenue growth to come from? Mr Blavier says there is plenty of room for the bank to expand earnings. “There is still a lot of potential for leveraging our client base,” he says. “We have yet to fully exploit our ability to cross-sell products.”

Hiring senior staff and building strong teams is also a high priority. BNPP recently hired Marco Lippi from Morgan Stanley to head up its Italian corporate finance business, as well as Philip Meyer-Horn from Lazard to run corporate finance operations in Germany. “You need credible coverage by top-notch people,” Mr Blavier says. “With the team of locals that we have now assembled across our European business lines, I think we are way ahead of our competitors in Europe. I am a firm believer in using domestic experience, but in the end the colour of the passport is not as important as the relationships you bring with you.”

Successful strategy

Mr Blavier believes this strategy is paying off. In M&A, for example, perceived as one of BNPP’s weaker areas, he says that while it tops the league table in France, it has extended its reach to other markets. “Over the past three years, we have been expanding our M&A business in Europe, and it has been a very successful strategy. We are now pretty strong in both the UK and Italy.” Figures from Dealogic show that in Italy, BNPP has moved from 17th last year to 11th by the end of June this year and is lying in 17th place in the UK.

But Mr Blavier believes that in Europe too, the US banks can trade on some big advantages. Aside from the cachet of listing a bulge bracket American firm as one of a corporate’s advisers, the sheer size and profitability of the domestic US market can stand them in good stead when building their international business. “The US market is so profitable that banks can subsidise lean years in Paris or London,” he says. “This gives them staying power.”

However, BNPP’s universal banking model has its own compensations. It has an enviable distribution network in France and elsewhere, with more than 2200 domestic branches. The bank is already adept at packaging products, including fixed income and equity products for its retail network and for private banking and asset management. “We will certainly embark on new cooperative efforts here,” says Mr Blavier. “Now that our US operations have largely finished their integration efforts we can envisage greater cooperation between CIB and our US retail business.”

Mr Blavier is upbeat about the future and believes the worst storms have been weathered. “Balance sheets have been cleaned up, and it is time to move aggressively again,” he says. “It is time to re-leverage. We are in a time of very low-cost borrowing and this should help to drive economic growth. After a phenomenal year for debt businesses, I think 2004 will be the year for the re-growth of equity and corporate finance. In the capital markets we need volatility we can work with, and this is returning.”

Career history:

Member of BNP Paribas’ Executive

Committee since 1996. Graduated from the Institut d’Etudes Politiques de Paris, subsequently received a PhD in law from the Faculté de Droit de Paris

2003: Head of BNP Paribas’ Corporate and Investment Banking arm

1998: CEO of Paribas’ Investment Banking arm

1996: Head of corporate banking in Paris

1991: CEO of Banque Paribas and Paribas North America in New York

1988: Deputy head of the international department and director of the global commodities group

1985: Managing director of North America, Banque Paribas

1981: Regional manager in charge of the US southwestern states, Banque Paribas

1971: Joins Chase Manhattan Bank, based in New York and Paris

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