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Reprinted from July 2016 www..com

WORLD’S BEST BNP EXCELS AT THE BUSINESS OF BANKING World’s best bank

Reprinted from July 2016 Copyright© Euromoney magazine www.euromoney.com WORLD’S BEST BANK FINE-TUNED BNP PARIBAS EXCELS AT THE BUSINESS OF BANKING BNP Paribas is that rarity: a large bank actually delivering on its promises to stakeholders. It is producing better returns even than many of the US , despite being anchored in a low-growth home region, building capital and winning customers – all while proving the benefits of a diversified business model. Its cadre of loyal, long-serving senior executives look to have got the strategy right: staying the course in Asia and the US and running global customer franchises, but only in the select services it excels at By: Peter Lee Illustration: Jeff Wack

eset by weak profitability, negative interest rates and Its third division, international , includes banking low growth in their home markets, European banks in the US, and Asia, as well as specialist business such are losing out to US rivals that restructured and as consumer finance, and and . recapitalized quickly after the global financial crisis At a time when peers are still shrinking, BNP Paribas is growing. and whose home economy has enjoyed a much more While new and uncertain management teams struggle to get back Brobust recovery since. to basics, the technicians at BNP Paribas embrace geographic and In April, the European Banking Authority published its latest update business diversity. Critics see a large bank running on six engines in on the vulnerabilities of the 154 biggest European banks and noted a the age of the monoplane. But BNP Paribas seems to have found the prevailing average return on of just 4.7%, an average return on happy knack of always keeping four of five of its engines singing. of just 0.29% and a non-performing loan ratio of 5.8%. “Is it our goal to be a global bank?” asks Jean-Laurent Bonnafé, At the same time, the Bank of St Louis, which ag- chief executive of BNP Paribas. “No. We are a European bank with gregates data for all US banks, recorded an average return on equity global customer franchises and one that seeks to capture what cli- of 8.3% after the first quarter of 2016, a return on average assets of ents want from a bank in the world of today and tomorrow.” 0.94% and a non-performing loan ratio of just 1.57%. This is a large, complicated and diversified banking group which But it’s in tough times that bank management teams prove their investors and analysts might expect to be struggling in the prevailing worth: when their chosen business models are most severely tested tough market conditions. But BNP Paribas is not struggling. It is de- and the true strength and depth of customer relationships reveal livering on its promises to shareholders. It is winning over customers themselves. and surpassing the competition even beyond its European peer group. BNP Paribas, a leading European with strong BNP Paribas has promised shareholders it will deliver a return on international reach in the US and Asia, was by some distance the tangible common equity of around 10%, now the standard target standout candidate as the world’s best bank in Euromoney’s awards for most large international universal banks but one that very few for excellence for 2016. are even close to hitting. Remember that the sluggish continent of accounts for For 2015 BNP Paribas delivered 10.1% and for the first quarter 70% of BNP Paribas group . It remains the heartland of of 2016, on an annualized basis and excluding one-offs, it returned a bank that has large domestic retail operations in , , 11.1% on tangible common equity. That’s far better than most other Belgium and and is also making inroads into , large eurozone banks and even better than some of the supposed especially with its digital bank. BNP Paribas also runs a large corpo- winners from across the Atlantic. , the world’s best bank in rate and institutional bank encompassing transaction services, FICC Euromoney’s awards for excellence in 2015, reported a respectable and equities markets business alongside classic . 9.1% return on tangible common equity for 2015 and 6.4% for the www.euromoney.com Copyright ©Euromoney magazine Reprinted from July 2016 World’s best bank

“This bank has a CEO and a management team that understands the machinery of banking and of this institution very well. They are professional technicians that listen to the engine of the bank and that really know how the engine works”

Jean Lemierre first quarter this year. also over the next four vived twin setbacks in the US – the sudden made a return on average tangible common years.” With BNP Paribas’ market cap at -term funding stop in 2011 and the equity of 9.1% in 2015 and 5.4% for the around $65 billion, only Santander ($71 $8.9 billion settlement and temporary first quarter of 2016. billion) in the eurozone carries a bigger clearing restrictions imposed in 2014 for Two of the biggest and strongest US valuation. sanctions busting with , Iran and banks both underperform the European Good returns are not a function of Cuba. champion. It makes you wonder what BNP . BNP Paribas’ fully-loaded III While other European banks have with- Paribas might achieve if its home region leverage ratio is 4%, up from 3.4% after the drawn from or severely cut back interna- ever does catch up with the US recovery. first quarter of 2015. In fact the bank appears tional operations, BNP Paribas has held on For now, BNP Paribas is delivering its to be getting less risky, not more so. In the to its key US asset, , selec- return targets – that were set in 2014 on first quarter, its cost of risk was just 43bp, tively expanded its CIB operations in the the basis of a 10% Basel III common equity down from a quarterly average of 57bp US and is now on track with plans for its tier 1 ratio – even after boosting that ratio across 2015. At the end of the first quarter it intermediate there. That’s up to 11% from a mix of retained earnings reported a liquidity coverage ratio of 116% a sign of commitment and resilience that and RWA reductions, while still being able with immediately available liquidity reserves US clients value and, looking out from their to pay out to shareholders a full cash divi- of €298 billion (up from €266 billion at the European heartland, executives believe that dend for 2015 of 45% of . end of 2015). Those may present an earnings BNP Paribas has the capital, liquidity and This is a strongly capital generative busi- headache but they are enough to cover a full talent to tap into growth in the US and Asia ness. UBS analysts have had a buy on the year of exclusion from wholesale funding in while selectively picking up market share at stock since initiating coverage in March. the event of any systemic market seizure. home as other European banks continue to One of them, Lorraine Quoirez, notes: “We BNP Paribas is a very well managed bank. struggle. see the bank returning around 30% of its It has had to be. BNP Paribas has sur- A snapshot look at net income in the first Reprinted from July 2016 Copyright© Euromoney magazine www.euromoney.com quarter, a tough one for all banks, shows be able to explain them to shareholders and Paribas people were more entrepreneurial, that BNP Paribas brought in 10% more then deliver them – based on a strong un- driven and creative. Lemierre claims that, profit than its closest European rival, San- derstanding of risk conduct and governance from an initially antagonistic merger, BNP tander; twice as much as its closest French – one year from now, three years from now. Paribas has managed to build on the best of competitor, Société Générale; three times Yes, you can have ambitions and visions for each predecessor bank’s culture. as much as UBS, one of the banks justly the future of the bank. But don’t dream.” At times, this speaking with one voice renowned for successfully Euromoney’s mind goes back nearly appears a little forced. In formal and its business model post crisis; more than seven years to a meeting in 2009 with Alain informal conversations with executives at three times what brought in; four Papiasse, then head of CIB at BNP Paribas. different levels and on different continents and a half times ’s profits; and Euromoney was pressing him on how much one hears so often how humble BNP more than eight times ’s net headway the bank, with its strong balance Paribas executives are to be considered by income for the quarter. sheet and ratings, might make in the Euromoney the world’s best bank that the The key for this bank management team US while the domestic banks were still reel- phrase loses meaning. Nevertheless, this is not just that BNP Paribas should con- ing from the sub-prime mortgage crisis and culture is strong; undoubtedly key to the tinue to stand balanced on a diversified mix corporations were looking for banks with bank’s success and when the bank does of business revenues and geographic expo- capacity to provide credit. “I recruit from outside it won’t countenance sures, but also that its businesses should be tell my people to be ambitious,” Papiasse told candidates that threaten it. integrated, that they should reinforce each Euromoney back then, “but not to dream.” Papiasse, now deputy chief operating other. officer and group general management , chairman of BNP Paribas representative in North America, is a rarity since 2014, tells Euromoney: “This bank THE CULTURE AND PRINCIPLES OF among the senior ranks, a relative outsider, has a CEO and a management team that pragmatic realism are clearly so well having built his career at Credit Lyonnais understands the machinery of banking ingrained that executives echo each other’s and Calyon and only coming to BNP Pari- and of this institution very well. They are statements even delivered years apart. No bas in 2005. He was not joining an entirely professional technicians that listen to the meeting with a senior BNP Paribas banker closed club. Stefaan Decraene, head of engine of the bank and that really know is likely to pass without the words ‘mod- international , joined in 2011 how the engine works.” esty’ and ‘humility’ cropping up at some from . But the average tenure at BNP Lemierre, who was head of the French point. Paribas of members of the executive com- Treasury from 1995 to 2000 and then Since the merger of BNP and Paribas in mittee is around 20 years and newcomers president of the European Bank for Recon- 1999, the bank has been run by a commit- have to accept and absorb the culture fast. struction and Development from 2000 to ted group of long-serving executives, not Back in 2009 Papiasse laid out some 2008, knows the bank well himself, having particularly well-paid by the standards of modest hopes to build distribution to long- been an adviser to its leaders since 2008, international banking, but intensely loyal only US investors and maybe pick up a before eventually succeeding and given to limited turnover. Look back little share in FICC to complement hoped- as chairman two years ago. He says: “They 17 years and long-time readers of Eur- for gains in equity capital markets and also have a very strong culture that is based omoney will remember that BNP was the M&A in Europe. It seemed conservative on the reality check. It is a culture that says larger and more staid of the two banks, at the time. In retrospect, it was entirely you must set only realistic goals. You must with a culture of customer service, while grounded. This was before the sovereign crisis in Europe forced a rapid deleveraging Solid financial structure Fully loaded Basel III CET1 ratio by banks there and before US investors stopped funding them. BNP Paribas Eurozone peer group Those meetings in 2009 also marked 11 11 the first time Euromoney sat down with Jean-Laurent Bonnafé, then chief execu- tive of BNP Paribas and on his way 10 10 up through the retail side of the bank

% % to become chief executive of the whole group in late 2011. We asked him then if 9 9 he would sell Bank of the West and have never forgotten this quietly-spoken and undemonstrative executive’s quizzical Dec Mar Jun Sep Mar SG BNPP UCI Casa DB BBVA San look in response, as if he had never heard 2015 2016 a dafter question. Hit by collapsing real Source: BNP Paribas estate prices, -based Bank of www.euromoney.com Copyright ©Euromoney magazine Reprinted from July 2016 World’s best bank

the West was making losses. No, Bonnafé domestic mortgage offering that was a €50 standalone development anywhere in this patiently explained to Euromoney, he was billion balance sheet business. However world. But if you want to be relevant to a not going to sell it. He was looking for when we studied the emerging liquidity German SME exporting to and can- acquisitions of other troubled banks from ratio regulations we realized there was no not offer onshore services in China, you are the FDIC to bolt onto it. way we could continue with it. And so we going to struggle to help them.” Seven years on and Bonnafé has been exited promptly.” In June 2016, Bonnafé says: “Right through a lot and not just a $8.9 bil- now the strategic balance of the group is lion settlement with US regulators over pretty much where we want it to be as we sanctions. Chief executive since the end THE AUSTRALIAN EXAMPLE IS A face a future in which digital, with all its of 2011, he first had to shrink his bank reminder of how international this - challenges but also the chance to improve before preparing it to grow again. “On the pean bank is. Present in 75 countries, BNP customer experiences and to cut costs, will day after the Fortis acquisition the group Paribas has 20,000 employees in the US, be extremely important.” balance sheet was €2,600 billion,” Bonnafé 10,000 in Africa and 12,000 in Asia. In digital banking BNP Paribas is best points out. “Three years later it had come European banks have struggled to get known for Hello bank!, a mobile and down to €1,900 billion before we started their business mix right in Asia, often com- web-provided brand launched in 2013 that adding more assets, including through bolt- peting in crowded high-profile business seg- has quickly gathered 2.4 million customers on acquisitions.” ments that turn out to offer poor margins. across Belgium, France, Germany, Italy and Euromoney reports separately on the With 12 banking licences across Asia and , including 400,000 clients acquired bank’s decision to hold on in the US market €57 billion of deposits BNP Paribas has the in 2015 alone. At the start of this year it had [see box item on Bank of the West]. Its scale to self-fund growth in the region. already achieved objectives for 2017 that it sound risk and capital management pre- In 2015 it generated €3.2 billion of set three years ago. Growth has not all been crisis allowed BNP Paribas the flexibility to revenues in Asia, a 60% increase from what organic. It acquired Germany’s DAB Bank stay the course in other distant geographies it brought in as recently as 2012. Though late in 2014 from UniCredit and merged it such as Australia. BNP Paribas had entered many banks have retrenched to become with its Consorsbank. In 2015, Direktan- Australia 130 years previously but in 2011 more national or regionally-focused since lage.at became Hello bank! in Austria. and 2012 many voices suggested it should the crisis, their customers have gone the In a BNP Paribas banking group still cut back. Many European banks did exit and other way, with even small-to-medium anchored in European retail banking, Hello BNP Paribas was one of the very few that size companies seeking to transact more bank! now accounts for 10% of the entire remained in what proved a resilient market cross-border than ever before, especially group’s individual client revenues, double in the first half decade after the crisis. European companies seeing limited demand the contribution it brought in 2014. It has “If you are weak going into a crisis, then close to home. brought in €24 billion of deposits and €80 having to shrink back to core strengths in “We are in Asia to serve all manner of billion of . a hurry can be a less than ideal approach. European and US clients interested in the The bank is thinking a lot about shared Sometimes it is wise to resist the obvious region and Asian clients looking the other infrastructure and shared business intel- short-term defensive move if you can,” way. We also have a number of Asian ligence. “Digital is a global phenomenon Bonnafé says. “But there are also times to clients looking to develop locally,” says but retail banking really does remain local get ahead of it. For example among others, Yann Gérardin, head of the corporate and and fragmented and that extends to pric- this bank had a large and profitable non- institutional bank. “Banks cannot afford ing dynamics,” says Bonnafé. “Thus we

Delivering return targets Strong profitability ROE/ROTE (excluding exceptionals) Net income, first quarter 2016 Return on Return on Equity* Tangible Equity* 3,896 CET1 B3 11.0% (fullyloaded) 1,814 1,633 10.3% 11.1 11.2 10.8 €mln 924 806 9.3 9.2 9.4 709 645 9.0 562 406 7.7 227 214 163 CS SG DB San UCI UBS CBK Barc Casa BNPP HSBC BBVA Intesa -276 Eurozone banks Non Eurozone banks 2013 2014 2015 1Q16 Source: BNP Paribas Source: BNP Paribas Reprinted from July 2016 Copyright© Euromoney magazine www.euromoney.com have launched Hello bank! throughout Europe; we won’t launch Hello bank! in the US, but we will continue to digital- ize Bank of the West. Indeed the whole of the BNP Paribas group, whatever the geography or the business line, will go through the digital transformation. And in doing so, much of what we learn with Hello bank! in Europe will feed into what we do with Bank of the West and other domestic businesses.” Bonnafé returns to his first point about global client franchises. “We are a commercial institution that services several groups of customers – financial institutions, large corporations, mid-cap companies, entrepreneurs, individuals – and we spend a lot of time assess- ing where we are strong and where we are weak. We pay a lot of attention to customer satisfaction surveys and thinking about where we can best invest in view of the likely competition. In the last five years we have reduced the areas in which we compete somewhat and narrowed the focus, devoting capital, liquidity and people only to customer franchises where we believe we can suc- ceed. We have done that because cus- tomers deserve only the best service.” He says: “I believe that some banks went too far in basing their approach only on product strength when what customers really want and need is service. If you focus on customer service it becomes part of your people’s DNA to look for the synergies between geog- raphies and businesses. You may have “I believe that some banks went too far in basing their approach a relationship with a large corporate only on product strength when what customers really want and based on debt capital markets and cash need is service. If you focus on customer service it becomes management. Does the client also need a consumer finance offering for its cus- part of your people’s DNA to look for the synergies between tomers? Because if it does, we are very geographies and businesses” good at that too.” Jean-Laurent Bonnafé

forecasting. published in October 2015 and drawing TRANSACTION BANKING HAS Ten years ago, BNP Paribas was on 27,000 customer responses, BNP become a crucial service for banks to ranked ninth in the world by non- Paribas was ranked fourth in the world excel in as corporate treasurers worry financial corporations in an inter- among international about the staying power of their partner national cash management business banks, still behind HSBC, Citi and also banks while the sector rationalizes, dominated by Citi and HSBC, attracting Deutsche but ahead of Bank of America lack of liquidity and lending capacity, less business even than ABN Amro and Lynch and JPMorgan. scarcity of collateral and place greater . In Euromoney’s In Europe, it was ranked second to urgency around cash management and most recent cash management survey long-established leader Deutsche Bank. www.euromoney.com Copyright ©Euromoney magazine Reprinted from July 2016 World’s best bank

But it is on the move. As recently as 2011, “RBS proposed BNP Paribas to their cash management and trade solutions BNP Paribas was ranked fifth in Europe. clients as a preferred partner for them in each country, but it also drew in the Since the last Euromoney survey, a to transition to,” recalls Gérardin. “And heads of domestic and international re- more recent Greenwich Associates study while some corporations had sensed tail markets because we had to be sure of market share in European corporate that RBS might have to withdraw and we could onboard these clients wher- banking and cash management shows were already making alternative ar- ever they were located – some of which BNP Paribas pulling ahead in first place. rangements to do more with existing we had had little previous dialogue with It will be interesting to see the results of partner banks, more than 1,700 legal – from a know-your-customer and also Euromoney’s next survey in October. entities, quite a significant number, from a risk exposure perspective.” Its ‘A’ rating and a strong financial decided to switch to us.” He adds: “On-boarding can be a performance that promises that BNP Gérardin describes this landmark six to nine month process that no-one Paribas will still be around in five years’ business win not simply as a case of undertakes lightly. I believe that the time are helping it to win business from BNP Paribas’s financial strength leading corporate clients transitioning to us corporate customers that other banks to market share gains but also as a key are very pleased to have a strong bank now struggle to serve. Last year, for example of cross divisional co-opera- serving them. Clients understand the example, RBS chose to withdraw from tion. “This may have been a CIB project constraints on banks and recognize the international cash management. to start with, involving the heads of value of such an essential service.”

BNPP builds on BancWest-ern promise

Other European banks may By comparison, Santander’s bank, a and a Bank of the West and a separate be quitting the US, but it re- US business has been sput- global wealth manager all at the holding company was formed mains an important contribu- tering for the last three years. same time. to include the two US entities tor to BNP Paribas’ HSBC’s acquisition of Household There are capital pressures, – BancWest Corporation. Now, stream International led to it having to however. BNP Paribas is prepar- as other foreign banks in the US sell almost half of its US retail ing for an IPO of First Hawaiian are being forced to establish an It has not been plain sailing for branches and its divi- Bank, which analysts welcome intermediate holding company, BNP Paribas in the US since an sion. RBS sold its last remaining for the capital boost, while fret- BNP Paribas has a head start. $8.9 billion settlement in 2014 for stake in Citizens Bank last year. ting about the loss of future earn- Bank of the West passed the enabling transactions from sanc- Indeed, alongside BBVA with ings. Some are even asking if the Federal Reserve’s Dodd-Frank tioned countries. But in Bank of BBVA Compass, BNP Paribas is same may be planned for Bank Act stress tests in 2014 and in the West, BNP Paribas retains in a league of its own. of the West, although the bank’s 2015. Santander stumbled at one of the top 30 banks in the Many European banks are global leadership dismiss this. the stress tests, while Deutsche country, with $75.7 billion in as- also exiting wealth management Group executives in talk Bank failed last year. sets. The US holding company, in the US. Barclays sold its US enthusiastically about the recent Senior executives at BNP BancWest, which also includes brokerage to last sum- hire of Nandita Bakhshi as CEO Paribas talk a lot about synergies First Hawaiian Bank, has close to mer. offloaded its of Bank of the West. A veteran and integration across divisions, 600 offices in 23 states. US wealth management arm to of TD Bank and Washington but in the US analysts say that Last year, BancWest’s rev- . Deutsche Bank sold Mutual, she has extensive ex- the decision to keep Bank of the enues (in euro terms) rose 26.7% Alex Brown to Raymond James. perience in both US consumer West fairly separate and apply a and it provided BNP Paribas with Other than UBS, only BNP Pari- banking and in the development hands-off approach has worked €910 million in pre-tax income, bas is sticking around. of digital channels. She also pro- well. Its success is partly a happy confirming its standing as one BNP Paribas says it wants vides a pointed answer to those accident of geography. Being of the main contributors to the to become one of the top five critics who complain that BNPP headquartered in San Francisco group’s results. That was more European banks in the US – only promotes senior executives has had distinct advantages than either the Belgian or Italian which is typically unambitious of from within. when it comes to fintech and businesses. It also enjoyed solid the French bank – but the truth BNP merged the French digital banking. Andy Harmen- growth in the first quarter of is, it could well become one of Bank of with Bank of ing, vice-chairman of consumer 2016, with deposits up 5.1% the top three. That’s thanks to the West in 1980. In 1998, First banking, says Bank of the West year-on-year, and loans up 7.5%. its ability to act like a community Hawaiian Bank merged with has been investing in innovation

Reprinted from July 2016 Copyright© Euromoney magazine www.euromoney.com Gérardin sees a new momentum CIBs to operate as a standalone busi- cash management enabled us to im- in customer relationships evolving. ness anymore. We have strong domestic prove market share in FX.” “Institutional clients also see that the and international retail banks in an Gérardin suggests that pre-crisis, Eu- pool of banks offering to service them economic region that will increasingly ropean companies raised perhaps 75% is shrinking. Thus, there is a shift in the be financed by capital markets and less of their financing from banks and 25% relationship between clients and their by bank balance sheets. from capital markets. “About 40% of banks, moving from a transactional- “Our integrated approach allows new financing is now coming from the type relationship to more of a partner- us to leverage successfully the bank’s markets, a level that if you had asked based relationship with banks that are networks and create interconnections me back in 2013, I would have said Eu- able to serve them over the long-term.” between businesses. This is one of our ropean corporates were unlikely to get strengths, enabling us to gain market to before 2020 or even 2025. Yet it is share. the reality. And helping clients manage GÉRARDIN HAS RUN CIB SINCE “Our integrated model is also dem- this shift isn’t driven by cross-selling. 2014 and sees clear links across busi- onstrated at CIB level, where we focus It’s about the instinct to client service nesses within the division and also on generating cross-selling opportuni- that is part of the DNA of BNP Paribas, between the CIB and other parts of the ties among product and service lines. across the domestic and international group. “No banking group can afford For example, gaining market share in retail banks and CIB.”

than their European peers in BNP Paribas would not have adopting digital products and been able to grow so fast in services – even though their US wealth without Bank of the customer base is arguably more West. “We have some very deep receptive. Bank of the West was relationships with business own- one of the first in the country to ers – both in the small business adopt photo bill-pay for mobile area in the consumer bank, as customers. It was also the first well as the commercial bank- bank in the US to offer custom- ing business – that have really ers the ability to swipe and see spurred our growth in wealth,” their balance on their phones says Pierre Ramadier, head of without having to log into their wealth management at Bank of bank account. the West. Executives in Paris speak highly of new Bank of the West CEO Nandita Bakhshi But it could well be wealth As BNP Paribas now prepares management that is Bank of to IPO its Hawaiian bank, Kiri for the last eight years on its West a boost. For example, the West’s most prized possession. Vijayarajah, financials analyst own. It has been partnering with multi-channel customer relation- Its wealth management assets at Barclays in , asks if it several fintech firms, as well as ship management platform for have grown more than 20% might sell or spin off Bank of the fintech incubator Plug and Play. Bank of the West has been every year since 2011 to reach West, too. “It would unlock a At the same time, in BNP Pari- mutualized from that of BNP $10.4 billion at the end of March lot of value.” He says that retail bas, Bank of the West finds an Paribas’ domestic market. 2016. In the last five years after banking is not an easy fit for any enthusiastic partner. The French Harmening says: “We are now BNP Paribas made the strategic European bank in the US. “The bank has invested heavily in tech- able to use data to tell us what decision to bolster the business, divergent regulation, different nology and digitization across clients prefer as a channel – the Bank of the West’s wealth man- rules about consumer protec- the world. It also has one of its , ATM, digital – and then agement business has grown tion and the inability to share L’Atelier BNP Paribas offices in we can build the user experience from 6,000 clients to 25,000 back-office costs make it a hard San Francisco where it connects around that.” clients, 250 to 500 employees case to fight for. Maybe digital with tech entrepreneurs. It is a key differentiator for and from no specialist branches will smooth out some of those That commitment from the Bank of the West. The US serving wealthy clients to having challenges, but it’s a big if.” parent has given Bank of the regional banks have been slower 15 centres across the region. Helen Avery www.euromoney.com Copyright ©Euromoney magazine Reprinted from July 2016 World’s best bank

“Our US clients have taken notice of this strong signal of commitment by BNP Paribas and of our capacity to be a partner to them. I believe that it enhances our position in the US”

Jean-Yves Fillion

Gérardin says that bankers working in tutional investors, including to investors bank’s divisional results. CIB is a volatile the domestic networks are already discuss- in the US that TEB doesn’t necessarily deal business. It can hardly be anything else. ing with the mid-cap corporates they serve with. It can’t afford to run a high-yield Profits at the two other big divisions have how these companies will be financed five team in . The corporate and been much steadier. For the first quarter of years from now. BNP Paribas has long institutional bank must service these clients. 2016 compared to one year earlier, profits been a leader in loan arranger rankings in And the same is true, of course, of mid-cap grew nearly 4% in domestic markets, near- Europe but is now pushing further ahead in corporate clients served by the domestic ly 7% for international financial services debt capital markets. Last year it brought networks in France and elsewhere.” while they fell 23% at CIB, following the teams from acquisition finance, corporate Gérardin is passionate about all this. Eur- market collapses at the start of the year. and high-yield debt capital markets and omoney asks whether this approach is built Yet then again, for the whole of 2015 loans together to form a single corporate around internal joint ventures with their own compared to 2014, profits at CIB grew by debt platform. BNP Paribas intends to service level agreements, to give comfort to 18%, three times the growth rate of domes- differentiate itself from the competition by bankers in the domestic retail banks that pre- tic markets (up 6.4%), and also ahead of deploying this for customers of its retail cious corporate clients they have long served international financial services (up 14%). banks and not just in core Europe but also will not be mistreated by the CIB. It is a but one that needs to on the fringe in Poland and Turkey. “I see myself working for BNP Paribas find its place and function within the larger “We have a strong retail bank in Turkey, group,” Gérardin declares. “The CIB divi- group. TEB, which services a lot of mid-cap com- sion has to serve all the client franchises panies in an important growth market,” of the group, including the domestic and says Gérardin. “They may borrow from international banking networks, institu- THE US MARKET REMAINS A KEY banks now but it will not be long before tions covered by , as well testing ground for BNP Paribas and for its these companies need to issue high-yield as clients across our specialist divisions.” large CIB division. BNP Paribas is creating bonds. That will require a bridge to insti- One can see his point looking at the an intermediate holding company in the US Reprinted from July 2016 Copyright© Euromoney magazine www.euromoney.com that will combine its retail and wholesale divisions. That puts it among just a small handful of foreign banks with the scale, resources and ambition to be significant competitors in the US. Jean-Yves Fillion, chief executive of BNP Paribas North America and head of the CIB, tells Euromoney: “The move to combine our activities in the US under an intermediate holding company not only demonstrates our commitment to the region, but subjects us to similar prudential standards as US banks, in terms of govern- ance, compliance, capital planning and liquidity stress testing. We will go through a private comprehensive capital analysis and review (CCAR) with the Federal Reserve next year and thereafter CCAR results will be made public, as they are for the big domestic US banks. “I can tell you that our US clients have “I see myself working for BNP Paribas group. The CIB division has taken notice of this strong signal of com- to serve all the client franchises of the group, including the domestic mitment by BNP Paribas and of our capac- and international banking networks, institutions covered by asset ity to be a partner to them. I believe that it enhances our position in the US.” management, as well as clients across our specialist divisions” The US, of course, has been a graveyard Yann Gérardin for foreign banks seeking to build the right size and scale of presence. In wholesale markets, the key question has always been tional banks must apply enhanced capital of group equity, with Bank of the West whether serving inbound and outbound planning, risk and liquidity management accounting for another 9% and domestic customer flows could sustain a business or and stress-testing equivalent to large US markets in the Mediterranean another 7%. whether to succeed in the US also required banks] was not an . That said we, So at a push that is just over 40%. building an essentially domestic business. like other institutions in today’s environ- The bank will present a new strategic BNP Paribas is committed – but remem- ment, have taken active steps to optimize plan to investors next year and you don’t ber that it doesn’t dream. It is not over- the use of our balance sheet.” need to spend long with BNP Paribas committed. It has big sales teams covering Other questions remain for the group. In executives to guess that digital will be a institutional investors dealing in non-US the years after the merger of BNP and Paribas big part of that. Might BNP Paribas have bonds and stocks and does a lot with US a pattern became visible whereby the bank anything else up its sleeve? companies going international. sought to derive half of its earnings from While FIG M&A bankers and senior BNP Paribas points as an example to its retail banking. Whenever organic growth in executives alike agree that global regula- role as lead-left active bookrunner last year CIB and specialist financial services tilted that tors remain hostile to combinations of large on a dual-tranche high-yield bond offering balance too far away from retail, the bank banks, BNP Paribas has been acting like a for Sealed Air, the packaging company sought an acquisition to bring it back to 50% consolidator, hoovering up small bolt-on based in Charlotte, North Carolina, which dependence on retail. So it acquired Banca acquisitions. As well as German online raised $400 million of US bonds and €400 Nazionale del Lavoro in the run up to the DAB, it picked up GE Capital’s million in a simultaneous euro debut offer- crisis and Fortis in the aftermath. European car leasing division last year, ing, together designed to refinance much Today, domestic markets account for just following deals for personal finance group more expensive dollar debt. It remains one third of group earnings, though a fair LaSer and Bank BGZ in Poland. to be seen how much more business BNP portion of revenues from international fi- Time will tell. For now, delivering prom- Paribas may derive from US companies and nancial services also come from retail bank- ised returns to shareholders even in tough US investors under the intermediate holding ing. It’s a fine judgment but it looks like markets, while growing customer market company structure. retail, which has 20% returns on equity, is share and building capital looks impressive Fillion says: “Given our size, scope and a smaller proportion than half of the group. enough. ambitions in the US, reducing below the Combined, equity allocated to retail in The US banks aren’t having it all their $50 billion threshold [above which interna- France, Belgium and Italy amounts to 27% own way. www.euromoney.com Copyright ©Euromoney magazine Reprinted from July 2016 GLOBAL

WORLD’S BEST BANK BNP PARIBAS Only excellent bank management teams can satisfy shareholders, regulators and customers all at once today. BNP Paribas has one of the very best

ine years on from the financial crisis, and as so many banks stumble to restructure their business models, a key lesson has been lost. The most important thing, the crisis showed, wasn’t whether a bank had a good business model or a bad business model. Rather, Nthere were good management teams and poor ones. Some monoline investment banks failed. Some monoline retail banks failed. Others in both camps survived. Some universal banks had to be nationalized. Some didn’t. Euromoney recalls this lesson because more than global scale or market dominance, it is quality of management that differentiates our world’s best bank in 2016. The executive team running BNP Paribas, Jean-Laurent Bonnafé’s management team led by CEO Jean-Laurent Bonnafé, has served the bank for an average has a terrific record on of 20 years. Loyal, technically proficient, not given to boasting or to delivering to stakeholders grand visions, this team has delivered better returns on tangible com- mon equity than many of the big US banks, while building capital, reducing risk and boosting its customer market share. At a time when most European banks seem incapable of satisfying Customers are benefiting too. Last year when RBS decided to with- any of the three external groups to which they are answerable – cus- draw from international cash management, it proposed to its customers tomers, shareholders and regulators – BNP Paribas stands out for doing that they switch to BNP Paribas. This was an impressive win but also a a good job for each of them. heavy undertaking that required on-boarding 1,700 new clients, which It delivered a 10.1% return on tangible common equity last year, far can be a six to nine-month process. Those customers come to a bank better than its European peer group, better too than some of the large that is serving customers well, according to leading surveys. Ranked US banks now cast as winners in global financial services such as Bank ninth globally in Euromoney’s benchmark cash management poll 10 of America Merrill Lynch and Citigroup. It also maintained a 45% years ago, BNP Paribas had moved up to fourth in our 2015 survey. payout ratio, and analysts calculate that the second largest In Europe it ranked fifth as recently as 2011 but had risen to second bank in the eurozone by market capitalization (after Santander) is on by October 2015, with more recent Greenwich Associates surveys sug- track to pay out 30% of its capitalization to shareholders by the end of gesting it may now rank first in market penetration among top-tier and this decade. It managed this while boosting its Basel III common equity large European corporates. tier-1 ratio up to 11% by the end of last year from 10% a year earlier It is also winning customers in retail banking with an impressive and improving its leverage ratio to 4% from 3.4%. digital offering in Europe. Since BNP Paribas rolled out Hello bank! Regulators may yet require more capital. This remains a large and in 2013 it has won 2.4 million customers across Belgium, France, Ger- complex bank with diverse geographic exposures – present in 75 coun- many, Italy and Austria. Some of those came through the acquisition of tries, with 20,000 employees in the US, 10,000 in Africa and 12,000 Germany’s DAB Bank in 2014, but Hello bank! also acquired 400,00 in Asia, where it has banking licences in 12 countries, $57 billion of customers in 2015. deposits and pulled in €3.2 billion of revenues last year – and diverse At a time when all banks are grappling with their digital strategies, business lines. Though its executives decline to call it a global bank, BNP Paribas already derives 9% of all individual client revenues from BNP Paribas runs several global customer franchises. It is big in retail Hello bank! banking in the US, as well as six countries in Europe. It has a strong It also owns Bank of the West, one of the top 30 US banks, which it corporate and institutional banking business which is starting to excel is folding into an intermediate holding company along with its US CIB in transaction services. And it operates large specialist businesses such businesses, in a strong signal of commitment to the US following the as consumer finance. $8.9 billion settlement over sanctions-busting in 2014. If it does need to retain more capital, at least this is a bank that A big contributor to group profits, Bank of the West, headquartered generates plenty of it. And the numbers suggest this does not come in San Francisco, shares the BNP Paribas culture of digital innovation from excessive risk taking. Sure, CIB earnings can be volatile as for and has been a pioneer in the US, where it launched the first snap-to- every bank. But its most recent financial reports in the first quarter of pay feature in the country last year, enabling customers to pay bills via this year showed BNP Paribas’ cost of risk was just 43bp, down from a a app and capture essential bill information using their quarterly average of 57bp across 2015. smartphone cameras. Reprinted from July 2016 Copyright© Euromoney magazine www.euromoney.com