21 December, 2010

France Bank Mergers & Acquisitions (BNP Paribas)

Photo: A BNP Paribas pocket notebook and pen kit that forms part of my banking item collection.

BNP Paribas S.A.

BNP Paribas was formed in 1999 by the merger of Banque Nationale de Paris S.A. and investment bank Paribas S.A.

Banque Nationale de Paris

In 1966, the French government combined two of the four state-owned banks, Comptoir National d'Escompte de Paris and the Banque Nationale pour le Commerce et l'Industrie, into the new Banque Nationale de Paris (BNP).

Comptoir National d’Escompte de Paris (CNEP)

In 1848, a political and economic crisis hit France and many private bankers went bankrupt following yet another revolution. The government of the Second Republic intervened and established the Comptoir National d’Escompte de la ville de Paris (literally, the National Discount Counter of the City of Paris) to provide banking service for businesses in major towns. In 1851, the bank shortened its name to Comptoir National d’Escompte de Paris. This was further changed to Comptoir d’Escompte de Paris (CEP) in 1853 when the French state relinquished control.

Interestingly, in 1860, CEP opened its first international office in Shanghai, as the bank acted as the state collection agent of war indemnities owed to France by Imperial China. From 1860 to the 1880s, the bank also opened offices in Reunion Islands, Calcutta (Kolkata), Bombay (Mumbai), Hong Kong, Saigon (Ho Chi Minh City), London, Yokohama, Alexandria, Melbourne and Sydney to provide trade financing for French industries.

In 1887, the bank’s management was embroiled in a major scandal that caused a bank run. When it became clear the bank had become insolvent, the French state injected cash and the bank restored its old name of Comptoir National d’Escompte de Paris (CNEP). CNEP became a limited-liability company in 1889.

Between the 1910s and 1920s, CNEP greatly expanded its national branch network and became the third largest bank in France by 1929. The bank, partly due to its strong retail deposit base, survived the Great Depression and World War II relatively unscathed.

When peace returned in 1945, the de Gaulle government nationalized the Banque de France, plus the Big Four retail banks: Banque Nationale pour le Commerce et l’Industrie, Comptoir National d’Escompte de Paris, Crédit Lyonnais and Société Générale. The nationalization was part of the plans to coordinate the nationwide re-building efforts.

In the 1950s, CNEP lost its operations in Egypt and scaled back from Tunisia as the rise of nationalism in some former French colonies forced out foreign businesses.

Banque Nationale pour le Commerce et l’Industrie

(Comptoir National d’Escompte de Mulhouse, Banque Nationale de Crédit, Banque Française pour le Commerce et l’Industrie)

In the same year that CNEP was founded by the French state, a smaller counterpart, the Comptoir National d’Escompte de Mulhouse (CNEM) was established in Mulhouse, in the region of Alsace. In 1854, CNEM was no longer under state control and was renamed Comptoir d’Escompte de Mulhouse (CEM).

During the 1850s and 1860s, CEM rode on the industrializing economy and opened offices in other principal towns, including Lyon, Marseille, Le Havre and Paris.

In 1870, France found itself at the losing end of a war and lost the region of Alsace-Moselle to Germany. This created a major complication for CEM: it had now become a French bank operating in a German region. As France and Germany continued to dispute the ownership of Alsace over the next 40 years, CEM in 1913 finally decided to re-group its larger operations in France proper into a subsidiary called Banque Nationale de Crédit (BNC). Parent company Comptoir d’Escompte de Mulhouse operating within German-controlled Alsace, now actually only had three branches. Despite their parent-subsidiary relationship, the Comptoir and Banque Nationale de Crédit agreed to avoid doing business in each other’s domain.

In the 1910s, Banque Nationale de Crédit grew quickly by absorbing more than 30 other banks. And in 1922, the bank took over Banque Française pour le Commerce et l’Industrie (founded 1901), a bank that had financed France’s public utilities, railway and heavy industries, but was in need of new capital at the time of merger.

The end of World War I saw France re-gaining control of Alsace-Moselle, but this didn’t solve the CEM-BNC complication even though both were operating in France once again. Their prior non-competition agreement meant that the parent company CEM still could not operate anywhere in France outside of Alsace-Moselle. Animosities between the two banks became so bitter that Comptoir d’Escompte de Mulhouse sold its stake in BNC in 1918.

By 1930, however, Comptoir d’Escompte de Mulhouse realized that its home market of Alsace-Moselle was too limiting, and agreed to be acquired by its former subsidiary Banque Nationale de Crédit. The good times didn’t last for BNC, however, for the bank soon got into severe financial difficulties during the 1930s Depression. A state guarantee on the bank’s deposits failed to stem depositors from withdrawing their money and between April and December, 1931, Banque Nationale de Crédit’s share price fell 96%. The bank soon collapsed and was rescued by the government, which re-structured it into the Banque Nationale pour le Commerce et l’Industrie (BNCI) in 1932. Throughout the 1930s, BNCI also absorbed other ailing banks.

World War II significantly restricted BNCI’s domestic operations, and the bank turned its attention to the French overseas colonies and territories, such as Algeria, Morocco, Ivory Coast, Cameroon, the Congo, Senegal, Madagascar, Reunion Islands and the French West Indies. However, the “de-colonialization” in the 1950s and 1960s saw the French bank retreating from many former colonies.

In 1945, BNCI, along with three other big commercial banks and the Banque de France, were nationalized by the French government. Between 1945 and 1959, the Big Four hardly opened any new branches under state control.

In 1966, the French government merged two of the Big Four state-owned banks, the Comptoir National d’Escompte de Paris and the Banque Nationale pour le Commerce et l’Industrie to form the new Banque Nationale de Paris (BNP). The new bank combined CNEP’s stronghold in retail banking with BNCI’s expertise in corporate and international banking. In 1972, BNP and seven other European banks jointly created the Associated Banks of Europe Corporation (ABECOR) that specialized in medium-term financing. In 1979, BNP acquired a significant minority stake in BancWest Corp. (Bank of the West) of California. BancWest in 1998 acquired First Hawaiian Bank.

In 1993, the French government finally privatized Banque Nationale de Paris.

Paribas (originally Banque de Paris et des Pays-Bas)

Paribas itself can trace its origins to two banks: Banque de Crédit et de Dépôt des Pays-Bas (Bank of Credit and Deposit of the Netherlands) and the Banque de Paris. Of the two, the Banque de Crédit et de Dépôt des Pays-Bas was older, having been founded in Amsterdam in 1863. The bank was established by a private banker family with connections in the Netherlands, France, Belgium and Germany. The bank soon opened branches in Paris, Brussels, Antwerp and Geneva.

In 1869, the Banque de Paris was established with French, Belgian and Danish capital. The two banks merged in 1872 to form the Banque de Paris et des Pays-Bas (the Bank of Paris and the Netherlands). Right from its beginning, the bank has had a strong position in the investment underwriting business, and during its first year of existence, helped float a three-billion francs debt issue for the French government.

Between 1872 and 1913, Banque de Paris et des Pays-Bas became an international power house in underwriting sovereign loans for nation states, including France, Belgium, the French and Belgian colonies, Imperial Russia, Morocco, the Balkan states, the Scandinavian nations, and Latin American countries.

Acting also as a merchant bank, Banque de Paris et des Pays-Bas took equity interests in numerous French and foreign companies in the railway, electric utilities, tramway, iron and steel, and chemicals industries. The bank also at one point held interests in numerous banks, including Banco Español Credito (Spain), Banca Commerciale Italiana, Banque Russo-Asiatique (a leading bank in Russia at the time), as well as other banks in Bulgaria, Romania, Serbia, Egypt, Turkey, Morocco, Canada and Japan.

Following the 1917 the Bolsheviks revolution, however, the new regime confiscated all foreign businesses in Russia, and refused to honour the debts incurred during the Tsarist era. Some estimates put France’s total losses in Russia to be USD $4-billion. During the 1930s Great Depression, as demand for international financing dwindled, the bank retreated to its home markets of France, Belgium and the Netherlands.

France itself was devastated during World War II, and the Sovietization of Eastern Europe following the war further shrunk Banque de Paris et des Pays-Bas’ international operations. In 1945, under General de Gaulle’s government, France nationalized Banque de France plus the Big Four commercial banks to co-ordinate re-building efforts. The nationalized Big Four focused on channeling shorter-term savings into supporting state treasury issues. As a merchant and investment bank, Banque de Paris et des Pays-Bas escaped the government intervention and remained a private-sector concern.

Throughout the 1950s and 1960s, the bank provided crucial financing to rebuild France’s industries across a wide spectrum, and to facilitate French exports. The bank opened an office in New York in 1960, to be followed by others in London, Luxembourg, Moscow, the Middle East and the Far East throughout the next 20 years.

Following a major policy shift by the French government, consolidations in the banking sector heated up in earnest. Between 1966 and 1973, Banque de Paris et des Pays-Bas gradually acquired majority control in another merchant bank, the Compagnie Bancaire. In 1968, the bank acquired French retail bank Crédit du Nord. In the same year, Banque de Paris et des Pays-Bas and rival Compagnie de Suez fought over the control of CIC (Crédit Industriel et Commercial). The fight only ended in 1971 when Suez took over CIC but gave up Banque de l’Union Parisienne to Banque de Paris et des Pays-Bas.

The bank became a major player in the Eurobond (foreign-currency bonds issued in Europe) market during the 1970s in co-operation with British trading house S.G. Warburg. At the same time, it expanded into asset management and wealth management for the first time.

When a new socialist government under Pierre Mauroy took power in 1981, Banque de Paris et des Pays-Bas, along with 39 other banks and another financing firm Suez, were nationalized. At the same time, the bank’s name was changed to Compagnie Financière Paribas, Banque Paribas. The short name Paribas actually had been the bank’s telegraph address since the beginning of the 20th century. Another shift in France’s ever-changing political wind meant that in 1987, Paribas was privatized and floated back on the stock market, with AXA (French insurer), Power Corp. (a Canadian financial conglomerate), Sumitomo Life (Japan) and Kuwait Investment Authority amongst its strategic institutional shareholders.

In 1997, Paribas decided to return to its corporate and investment banking root and sold its French retail banking unit, Crédit du Nord, to rival Société Générale, for FRF 2.2-billion (USD $420-million). Crédit du Nord had 600 branches. Paribas then sold its Belgian and Dutch retail banking operations to Belgium’s Bacob-Arco Group (which became
Dexia). In the same year, Compagnie Financière Paribas, Banque Paribas and majority-owned subsidiary Compagnie Bancaire decided to fully integrate into a new entity called Paribas S.A.

In early 1999, Paribas agreed to a 15.0-billion (USD $17.0-billion) buyout offer from Société Générale. Not wanting to be left behind, however, rival Banque Nationale de Paris made a hostile USD $21.o-billion counter-offer for Paribas, and an unimaginable, separate USD 19.6-billion offer for Société Générale (SocGen). BNP’s three-way merger proposal would have created the world's largest bank.

Uncertainties surrounding BNP’s insane ambition resulted in a drop of its share price, reducing the combined value of the offers for Paribas and SocGen to USD $38.0-billion. For months, all three banks engaged in a public relations battle in an attempt to win support from the public, shareholders and the French banking regulator. In the end, BNP succeeded in breaking SocGen and Paribas' merger plan, and acquired Paribas to form BNP Paribas. However, it could only secure 31.5% of SocGen's shares. The French banking regulator eventually vetoed BNP's merger plan to acquire Société Générale.

Recent transaction(s):

  • In 2001, BNP Paribas bought the 55% of BancWest Corp. in the U.S. that it didn’t already own. BancWest owned Bank of the West in California and First Hawaiian Bank.
  • In 2002, BNP Paribas bought United California Bank for USD $2.4-billion from UFJ Holdings of Japan.
  • Also in 2002, BNP Paribas bought a 10.9% holding in Crédit Lyonnais S.A. from the French government for Eur 2.2-billion. Following a ruling by the French court in 2003 denying BNP Paribas' proposal to take over Crédit Lyonnais, BNP Paribas sold its minority stake in Crédit Lyonnais to Crédit Agricole S.A.
  • In 2004, BNP Paribas bought Community First National Bank for USD $1.2-billion. Fargo, North Dakota-based Community First National operated 155 branches in 12 Midwest states.
  • In 2005, BNP Paribas' BancWest Corp. subsidiary bought Omaha, Nebraska-based Commercial Federal Corp. for USD $1.36-billion. Commercial Federal Bank had 198 branches across the U.S. Midwest.
  • In 2006, BNP Paribas bought Italian bank Banca Nazionale del Lavoro (BNL) for Eur 9.0-billion (USD $11.3-billion). This followed the Bank of Italy's veto of Unipol Assicurazioni's bid for Banca Nazionale del Lavoro.
  • In 2007, BNP Paribas agreed to purchase 19% of Libya's Sahara Bank from Libya's central bank for Eur 145-million (USD $200-million). BNP Paribas would take over the operational control of the bank, and retained the right to take up 51% of the bank by 2012.
  • In 2008, BNP Paribas bought Bank of America's hedge fund servicing prime brokerage unit for a reported USD $300-million (Eur 194-million). The unit has about 500 hedge fund clients.
  • Following months of legal challenges and negotiations between Fortis shareholders, BNP Paribas, and the French, Belgian and Luxembourg governments, BNP Paribas in March 2009 agreed to acquire 75% of Fortis Bank Belgium and 25% of Fortis Insurance Belgium for Eur 9.625-billion (USD $12.25-billion). In addition, BNP Paribas also acquired a direct 16% stake in BGL (Fortis’ Luxembourg operations) for Eur 831-million (USD $1.06-billion). BNP Paribas controlled another 50% of BGL through 75%-owned Fortis Bank Belgium. Click here for details of Fortis’ collapse and the transactions.
  • The purchase gave BNP Paribas 1,458 Fortis branches in Belgium, Luxembourg, Poland, Turkey, France, and other countries except the Netherlands. It would also gain more than Eur 239-billion of customer deposits, propelling BNP Paribas to become the largest bank in the Eurozone based on deposits.
  • In October 2008 and March 2009, the French state injected a total of Eur 5.10-billion into BNP Paribas in return for non-voting shares of the bank.
  • In September 2009, BNP Paribas raised Eur 4.3-billion (USD $6.27-billion) from a rights issue to repay the government the Eur 5.10-billion bailout funds.
  • In November 2009, BNP Paribas’ Fortis Bank unit sold its 49% stake in Chinese fund manager ABN AMRO TEDA Fund Management for Eur 105-million (CAD $156-million, HKD $1.2-billion) to Canada’s Manulife Financial. BNP inherited the ABN AMRO TEDA stake from Fortis, which acquired parts of Dutch banking ABN AMRO Holding in 2007.
  • In December 2012, BNP Paribas agreed to sell its 95.2% stake of BNP Paribas Egypt to Emirates National Bank of Dubai (Emirates NBD) for USD $500-million (Eur 378-million).  BNP Paribas Egypt had a network of 69 branches.
  • In December 2013, BNP Paribas bought 98.5% of Poland's Bank BGZ from Rabobank of the Netherlands for PLN 4.2-billion (Eur 1.0-billion, USD $1.37-billion).  BGZ operated about 400 branches in Poland.
  • In April 2018, BNP Paribas' Polish subsidiary BGZ BNP Paribas agreed to buy the core banking operations of Raiffeisen Bank Polska for PLN 3.25-billion (EUR 775-million). Raiffeisen Bank Polska had a corporate and retail loan portfolio of PLN 19-billion (EUR 4.5-billion) and client deposits of PLN 34-billion (EUR 8.1-billion).
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