Think UK banking and you
probably don’t think BNP Paribas. Those at the bank argue you already should,
even before a renewed push in the country that forms part of the firm’s 2020
business development plan.
After all, it has just
celebrated its 150th anniversary of operations in the UK, where it now employs
more than 7,500 people, in dozens of cities. It is embedded in day-to-day life.
They might not know it, but people using store-based finance to buy wide-screen
televisions on the high street are probably borrowing that money from BNP
Paribas.
Just days after celebrating
its milestone anniversary of operations in late September, the French bank
appointed a head of UK corporate banking, Matthew Ponsonby, best known for long
stints at Citi and Barclays, which he left in early 2017.
After 150 years, such a
hire seems a little overdue. But coming as it does also in the wake of the
appointment late last year of a new UK group country head in Anne Marie
Verstraeten, it is an indication that the bank’s stated aim to beef up its UK
franchise is a serious one.
The UK expansion also has a
useful precedent from which the bank has been able to learn lessons – its push
in Germany, which has been a focus since 2013 and was reiterated this year in
the 2020 plan that designated the UK, Germany, the Netherlands and the Nordics
as the four geographical areas where the bank wanted to increase its reach.
The success of that will be
largely down to the extent to which the bank can become more joined up than it
has been in the past.
Improving connectivity is
something of a familiar story at BNP Paribas: most conversations Euromoney has
within the bank about ways in which it is looking to beef up in one area or
another seem to come around to the need for staff to get more acquainted with
what other areas of the bank they can offer to clients.
One banker sums it up thus:
“We were historically quite siloed, but people have to have a greater affinity
for what the whole platform can offer. Our pitch to big accounts is that we are
the biggest by assets in Europe, have a huge capability in underwriting,
derivatives, cash management and so on. There is no better time to make that
pitch to clients than now.”
Yann Gérardin, Head of Corporate and Institutional Banking
For Yann Gérardin, head of
corporate and institutional banking at BNP Paribas, the arrival of someone like
Ponsonby is evidence of an evolution of the bank’s strategy.
When Euromoney sat down
with Gérardin nearly two years ago to discuss his plans for the CIB, the
emphasis was still on establishing the right structure internally and ensuring
that the bank’s best people were in the right jobs. There was no rush to hire
from outside.
The last 12 months have
seen a change, however.
“We have achieved a
cultural transformation within the bank, and now the 2020 plan has been the
formalisation of what we want to grow into,” says Gérardin. “Now we are at the
stage where it is useful to have ideas and skills from the outside to help us achieve
our potential.”
It’s also at the stage
where the strategic dialogue is becoming more important. BNP Paribas does a lot
of things well, but it’s rare that it’s talked of by rivals as a force to be
reckoned with in M&A advisory, for instance.
Gérardin doesn’t discount
the advantages that such dialogue can bring – and it is undoubtedly set to
feature in the bank’s plans in the markets it has targeted for growth – but he
is also aware of the risk of deviating from the bank’s core identity. He notes
that there are few better signs of client commitment to a bank than trusting it
with all of its payments and cash.
He also argues that the
strategic conversation will not be as useful as it can be without the
connectivity and the awareness of the overall firm.
“When we hire a pure
investment banker, it is still important for them to understand the whole of
what we can offer, which includes businesses like Arval [vehicle leasing],
Cardif [insurance], personal finance and Exane,” he says. “In future we will be
hiring more positions into M&A, but we will still be leading with our
diversified and integrated business model.”
Viewed through that prism,
the stated intention to beef up in markets like Germany and the UK is less
about building lots of new businesses and more about applying a more
coordinated overlay to avoid the firm punching below its weight.
German template
Lutz Diederichs joined BNP
Paribas from UniCredit’s HypoVereinsbank at the start of 2017 as group head for
Germany. He came on board when the French bank had already spent several years
focusing on the country within its 2013 to 2016 growth plan, and he was struck
by the progress made.
Under his predecessor,
Camille Fohl, who moved back to the Paris headquarters in March, BNP Paribas in
Germany clocked up a compound annual growth rate of 8% in net banking income
since 2013, reaching €1.5 billion in 2016 – more than BayernLB, for example,
and accounting for about 3.5% of the group total. Profits in the country were
€380 million, or 2.7% of the bank’s total. It has more than 3,000 corporate
clients in the country.
“I wondered how were we
doing it, and I got two answers,” Diederichs tells Euromoney. “One was the very
wide product range, from consumer finance to investment banking, and the other
was that for a European bank, we were able to offer an unusually global network
to clients.”
For Diederichs, the next
stage of the plan is part-continuity, part-leveraging the progress so far: “We
showed already in 2013 to 2016 that we were able to grow in a more or less
stable market, and the 2020 plan is to continue that.”
Lutz Diederichs, Group Head, BNP Paribas Germany
The plan is to increase
revenues from that €1.5 billion to €2 billion in 2020 – the same 8% CAGR as
since 2013.
Germany matters intensely
to the firm’s pan-European status – a status that BNP Paribas stalwarts believe
increasingly sets the bank apart from almost all of the competition.
“We are a European bank,”
says Diederichs. “I am totally convinced that you cannot be one of the
strongest banks in the eurozone without being strong in Germany.”
Upping the penetration with
clients is a priority: Diederichs has had more than 100 client meetings in the
10 months he has been on board. Often, it is that broad product suite that
hooks the client interest.
“If we are talking to an
electronics retail trader and we can come up with a proposal that finances
their clients on the consumer finance side, that is a real advantage compared
to others – to be able to talk not just about their strategic banking needs but
also the needs of their clients,” he says.
As is well documented, the
German banking sector is hardly a profitable enterprise – many firms are
operating with returns on equity of just a few percent. But that doesn’t mean
there are no opportunities for outsiders. With 30,000 branches, there are more
bank outlets than petrol stations or bakeries, but BNP Paribas doesn’t suffer
from the divestment and restructuring burdens afflicting some domestic players.
It has no retail branches
and yet has some three million private clients in the country, roughly equally
split between consumer finance and Consorsbank, a unit of the bank’s Hello
bank! digital brand. Diederichs argues that this puts the firm in a strong
position, with no legacy burden to deal with.
“We have no need to
restructure a network in Germany, as we are operating with a digital bank on
the private side,” he notes.
Diederichs boils the growth
opportunities in Germany down to four priorities.
Unsurprisingly, given the
fact that German banks – with the continued exception of Deutsche Bank – are
broadly domestic-focused, one is to secure greater penetration into that part
of Germany’s Mittelstand that is internationally active. That means also
targeting clients smaller than the €250 million turnover that has been much of
the focus so far.
Second is establishing a
stronger retail position, building on the platform provided by its consumer
finance operations and Consorsbank.
Next is a beefing up of
wealth and asset management, where the bank is not particularly strong in
Germany at the moment. Doing that will need investment in the platform and the
people.
From a product perspective,
the only obvious gap is real estate financing, either using the bank’s own
balance sheet or from in advisory – where the bank has been successful in other
markets.
While the Mittelstand focus
will continue to be on taking advantage of the bank’s international reach,
Diederichs doesn’t rule out greater work with domestic small- and medium-sized
enterprises in addition to the leasing and factoring services that it already
provides – but ideally in a purely digital manner.
BNP Paribas Germany revenues (€m)
Value chain
For a bank like BNP Paribas,
there is an obvious route to gathering clients: balance sheet. Is that going to
be the model for expansion in Germany?
“Our DNA is as a commercial
bank and then to provide investment banking services according to client
needs,” says Diederichs.
That means the bank tends
to follow a hierarchy of involvement, which starts with the ability to finance
clients. Then come commercial banking areas such as cash and trade, then
participation in a syndicated loan before taking a lead role. Next comes debt
capital markets, including Schuldschein in Germany, then equity capital markets
and M&A, the most strategic end of the spectrum.
Philippe Bordenave, Chief Operating Officer, BNP Paribas
Diederichs reports to BNP
Paribas’ chief operating officer Philippe Bordenave, as did Fohl before him.
Speaking to Euromoney as BNP Paribas announces third-quarter results at the end
of October, Bordenave outlines a similar sequence to that described by
Diederichs, but notes that the bank found the first focus on basic services to
be slow-going in Germany.
“It was with muted success
initially because you also have local banks offering services like cash
management and loans,” he says. “But we then moved to the second step, which
was to offer the capacity to help them abroad.”
Others were not able to do
that so readily. BNP Paribas can accompany a client to Turkey, Ukraine, Brazil
and throughout Asia, for instance – markets of critical importance to many
German firms. The third leg was the value-add business of capital markets.
BNP Paribas is well known
for its strengths on the euro debt side, but there is surely scope for it to
improve its 12th place bookrunner ranking for all German DCM in euros,
according to Dealogic data.
It has done notable deals
as an issuer, specifically targeting the German investor base in interesting
ways, including with a €750 million senior bond in 2016 that it tapped for a
further €500 million, and a €750 million non-preferred TLAC (total loss-absorbing
capacity) this year.
BNP Paribas can accompany a client to Turkey, Ukraine, Brazil and throughout Asia – markets of critical importance to many German firms.
The biggest challenge is
building the final part of the value chain, but Diederichs thinks there are
signs of progress in Germany. As Euromoney speaks to him, the bank has just
completed the IPO of HelloFresh, where it was bookrunner alongside four other
firms.
As bankers at BNP Paribas
like to point out, the bank is now ranked first for German initial public
offerings since the beginning of 2016 – a statistic that seems remarkable until
one considers there have only been 19 deals worth a total of $9.6
billion-equivalent in that period, BNP Paribas has led just four of them, and
the bank ranks fourth so far in 2017. But it’s certainly a start, and with the
hire this year of Andreas Bernstorff from Citi to run European ECM, expectations
internally are high.
In M&A, the bank ranks
eighth so far this year for completed deals with any German involvement,
although it is the only bank in the top 10 to have a single-digit deal count,
at nine.
Its $23.6 billion of
advisory credit is also largely down to just a few deals, including the $10
billion acquisition of Siemen’s wind business by Gamesa of Spain and the $6.4
billion acquisition of Spanish hospital group IDC Salud Holding by Fresenius Helios,
both announced in 2016. BNP Paribas got advisory credit for the Siemens/Gamesa
deal, but it was providing a fairness opinion while the financial adviser was
Goldman Sachs.
The bank will have a lot of
work to do to even maintain that ranking next year. So far this year, the bank
ranks 16th for announced deals, and half of its credit is dependent on the
acquisition of Siemens Mobility business by Alstom. But this time it is
financial adviser to Siemens alongside Goldman Sachs.
Upping the boardroom conversation
on strategic matters is certainly part of the plan at BNP Paribas, but even now
it would be wrong to see this as the overriding thrust, in Germany and
elsewhere.
“ECM and M&A are very
important, but it is the commercial businesses that will produce stable
income,” says Diederichs. “M&A and ECM are always the cherry on the cake,
but they are not the cake itself.” Diederichs argues that
Germany is a market where the value chain he describes matters more than most,
particularly with the Mittelstand.
“I know the Mittelstand
well, and for a bank like us it is necessary to be one of the core banks of a
client,” he says.
That partly reflects the
attitude of those clients. Mittelstand companies don’t tend to fawn over
dealmaking advisory shops: they represent a conservative segment that values
long-lasting relationships with banks that touch everything across their
operations. It doesn’t mean that there is no scope for pure transactional work,
but the bulk of business will be built on core relationships.
The ambition is undoubtedly
big: no less than for Germany to be one of BNP Paribas’ home countries. But
there is plenty of competition, even as Germany’s domestic banks cut a much
less impressive figure on the international stage than they once did. And for
all Diederichs’ knowledge of the Mittelstand relationship mentality, can BNP
Paribas really ramp up its broader presence without just lending more and being
rewarded less?
That matters, because at
the moment it is easy for clients to pick and choose their banks – there is a
lot of liquidity in the market and at a low price. But times change, and as
that happens one might expect the balance of relationships to shift.
“It is fair that a bank
that is taking risk and providing liquidity should be the first choice in
cross-selling,” says Diederichs.
An equally pertinent issue
is whether or not the bank’s plan can be achieved organically. Many away from
the firm regularly cite BNP Paribas as a possible buyer of Commerzbank,
although it is unclear what this would bring to a bank like BNP Paribas other
than saddling it with costs and legacy issues – and perhaps a small common
equity tier-1 boost. At 13.5% in the third quarter of 2017, Commerzbank’s CET1
ratio is above BNP Paribas’ 11.8%, but that is hardly the stuff of compelling
acquisition logic for the French bank.
Diederichs won’t comment on
the rumours, of course, but is categorical about the achievability of his
current targets with the firm as it is now: “They are 100% based on organic
growth.”
Finding the differentiator
An explicit drive for a
bigger presence in Germany featured a few years earlier in BNP Paribas’
strategic plans than it did for the UK, but the 2020 plan has put a firm focus
on the latter. What people in the industry
usually know about BNP Paribas in the UK is that London is where its markets
business has been headquartered for some time. Its CIB footprint in the country
amounts to about 4,800 staff, by far the biggest chunk of its UK presence.
But its Arval vehicle
leasing business employs almost 800. BNP Paribas Personal Finance has 730 – and
a little-known UK pedigree, dating from the early 1970s, when it was the
financial services business of Selfridges. The real estate business boasts
nearly 500 staff.
All told, the bank posted
€2.6 billion of revenues in the UK in 2016, with profits of €600 million (6%
and 4.3% of group totals, respectively).
For Bordenave, one of the
lessons of the German experience was that an initial focus on the first stage
of the value chain was not going to be a big differentiator in the UK market.
As in Germany, many corporates – including small ones – are well served at the
bottom end of the strategic spectrum. The priority, then, is identifying those
existing and future clients where the bank can leverage its network and
specialist product expertise.
Anne Marie Verstraeten, Group Head, BNP Paribas UK
When Euromoney meets UK
group country head Verstraeten to discuss the business, it is the first time
she has done so outside the firm, having only recently got management approval
for the current strategy. She has also just been through the firm’s latest EMEA
strategic clients day, where coverage bankers are convened from across the
region to discuss opportunities. The event happens twice a year, but the latest
was in London.
She has been in post for a
few months longer than Diederichs, having moved to London for the role in
October2016. She has been at the firm since 2010. But she describes a similar
process of discovery about the scope of the franchise that already existed in
the country.
“Having applied a fresh
pair of eyes to the UK business after seven years abroad at the firm, it became
clear to me that this was a very big platform, with deep knowledge and
experience,” she says. “It is really a microcosm of the group, which is an
integrated bank. We have all of our main poles here: corporate and
institutional banking, international financial services and domestic markets.”
So what is left to be done?
Yet again, it’s about connectivity – an inevitable ‘deliver the bank’ mantra.
And again, it sounds like the biggest part of the job is making sure that BNP
Paribas staff know what the bank actually does.
“I saw that the
connectivity between the businesses could be intensified,” says Verstraeten.
“Whether with corporates or financials, relationship managers need to have the
broad palette and be able to identify how it can be used.”
And that palette is still
broadening.
As recently as October, the
real estate group acquired the almost impossibly English-named property
consultant Strutt & Parker, which dates back to 1885. Plugging the real
estate group better into the corporate and FIG coverage franchises is something
Verstraeten says is happening.
So far, the focus has been
on the top end of the corporate market, accompanying them outside the UK. There
the balance sheet and presence in core corporate facilities has been the entry
ticket, as has the global network. It’s a strategy built around two client patterns:
UK headquartered companies and the London base of multinationals.
That sounds fairly
familiar: Barclays, HSBC, Citi and Bank of America Merrill Lynch build their
corporate coverage around a similar model, as Verstraeten concedes with a wry
smile: “Yes, we are in good company.”
When Bordenave talks of not
having to dwell on the first phase of the value chain too much in the UK, that
doesn’t mean there is nothing to be gained from developing specific elements of
it. Verstraeten notes that discussions with corporates have increasingly
focused on working capital management solutions – where the bank has specialist
teams in London, Paris and the US. As Diederichs has in
Germany, Verstraeten has a list of opportunities for the UK business. Some
overlap his.
Broadening the client base
to the smaller end of the corporate spectrum is one. At the moment, the firm
has concentrated mostly on FTSE250 names, but she sees plenty of medium-sized
or growth companies where a relationship could be profitably formed. That might
well be through consumer finance, building on notable examples of work already
done with firms like catalogue store Argos and the electrical retailing group
Dixons Carphone.
More work with financial
institutions is another priority – BNP Paribas bankers can perhaps expect to
spend increasing time with the challenger bank community in Solihull. But the
securities services business – nicknamed BP2S – that is based in London and
Glasgow is also expected to be a profitable source of increased business with
the asset management and insurance sectors.
Verstraeten has a list of opportunities for the UK business [including] broadening the client base to the smaller end of the corporate spectrum and more work with financial institutions.
One of the biggest
opportunities might come from the private equity world, however. That’s not an
exclusively UK push, but it’s highly relevant to it because bankers argue the
majority of European private equity decisions are made in London, and it’s an
area that BNP Paribas has historically neglected.
That might be set to
change. In another overdue move, the bank late last year hired a global head of
financial sponsors in James Seagrave, from Jefferies. Much of his task will be
ensuring that the bank at long last generates the kind of clout in the
strategic part of the private equity sphere that it should, given its existing
lending activity in sponsor situations.
What’s needed, say bankers
at the firm, is a shift from a transactional approach to one in which private
equity houses are treated as clients in their own right.
And while the CIB effort
will inevitably continue to focus on how the bank can help clients that need
international access, Verstraeten believes that there is more to be done on the
domestic front at the strategic end.
The strategic dialogue with
chief executives is an area where the bank has punched below its weight in the
UK, and it will likely be a focus for Ponsonby.
It’s clear that there are
not one but two elephants in the room with the potential to trample BNP
Paribas’ ambitions.
If one of the ways of
developing more relationships is to build on existing consumer finance and
affinity loan offerings, then the bank is set to increase its exposure to UK
households that are already highly indebted after a period of record low rates
– rates that are now starting to rise, although slowly.
“We consider leverage
carefully, but the key will be segmentation to ensure we are diversified,” says
Verstraeten. “We will take lessons from what we have historically done in
France, where we have good knowledge of spotting early indicators.”
While the CIB effort will continue to focus on how the bank can help clients that need international access, Verstraeten believes that there is more to be done on the domestic front.
The other is Brexit. On the
face of it, it seems a curious time for a eurozone firm to be looking at ways
to increase its presence in a country that is about to leave the European Union
and is widely predicted to be set to suffer economically for doing so.
Bordenave reckons that
there is an opportunity within the challenge: “We believe that precisely at the
moment where the UK may be more isolated than in the past, it will be more
important than ever for UK corporates to have a core continental bank with
them.”
Gateway to Europe
Gérardin shrugs when
Euromoney asks what constraints could hinder execution of the bank’s plans:
regulation, competition? He doesn’t think so.
“The worst thing for us
would be no regulation,” he says. “Regulation actually increases selectivity
amongst competitors, and therefore market safety.”
It’s a familiar argument:
that as long as the headwinds are buffeting the competition more severely, one
should feel encouraged even while the sector remains storm-tossed. Gérardin
sums it up with a line from Talleyrand: “Quand je me regarde, je me désole;
quand je me compare, je me console.” (“When I look at myself, I am sad; when I
compare myself, I am consoled.”)
If that sounds melancholy,
he doesn’t mean it to be. Gérardin knows as well as anyone that BNP Paribas
stands to gain from some macro developments, not least Brexit. The bank’s UK
plans might be exposed to any resulting weakness, but UK competitors will
surely find it harder to pitch themselves as a client gateway to Europe after
the exit in March 2019.
It will be more important than ever for UK corporates to have a core continental bank with them
Philippe Bordenave, COO, BNP Paribas
As an EU-headquartered bank, BNP Paribas has more flexibility in its contingency planning than others
now scrambling to establish bridgeheads in the region. UK banks have the added
distraction of preparing for the implementation of a ring-fencing regime for
their domestic operations early next year.
He will also know –
although few at the firm are willing to acknowledge this publicly, for fear of
giving an appearance of entitlement or complacency – that a firm like BNP
Paribas can pick up a decent share of business from clients outside the region
simply by being the pan-European bank that sticks around, doesn’t retrench and
doesn’t look likely to blow up.
That’s not as easy as it
sounds. But a stronger position in the UK and Germany can only help.
This article first appeared in Euromoney in
December 2017.
