COMPANY OVERVIEW BNP Paribas is a leader in banking and financial services in Europe. The three main activities of BNP Paribas are complementary, providing strategic strength and assuring the bank financial solidity: Retail Banking Investment Solutions Corporate & Investment Banking. It also focuses on international retail banking, specialized financial services, private banking, asset management, and insurance services. The bank is part of the BNP Paribas Group, which is one of the strongest banks in the world as rated by Standard & Poor‟s and has a presence in more than 80 countries with more than 200,000 employees, half of which are based in its four domestic markets: Belgium, France, Italy and Luxembourg. By placing the customer firmly at the heart of its operations, “the bank for a changing world” has positioned itself as a responsible company at the service of its customers. It defines itself through its rigorous approach to managing risk, its capacity to adapt and its ability to innovate. The registered office is located at 16 Boulevard des Italiens 75009 Paris, France. KEY FACTS BUSINESS DESCRIPTION BNP Paribas is a leading financial organization. It operates through three core businesses: corporate and investment banking, retail banking, and asset management and services in almost 85 countries in the world. The corporate and investment banking division offers advisory services for mergers and acquisitions and primary equity market transactions through its subsidiaries, one of them being BancWest Corporation. It is also engaged in designing and structuring a range of financing arrangements, including syndicated loans, acquisition financing, LBO financing, project financing, optimization and asset financing, media and telecommunications financing, marine financing and aircraft financing. The retail banking division offers a line of products and services ranging from current account services to complex financial engineering services in the areas of corporate financing and asset management. The asset management and services division offers a range of products and services tailored to the financial and wealth management needs of a private clientele through its subsidiary, BNP Paribas Asset Management. Its approach is heavily weighted towards advisory services and personalized management. Securities services specializes in securities services for companies and financial institutions, including banks, brokerage houses, pension funds, asset managers and insurance companies. In addition, the BNP Paribas Capital unit, a subsidiary, spearheads the private equity business. BNP Paribas also offers a range of property-related products and services in France and has teams who specialize in managing portfolios of quoted stocks and sovereign risks. HISTORY BNP Paribas was created in August 1999 through the merger of Banque Nationale de Paris and Paribas. The bank strengthened its position as a custodian bank through the acquisition of the securities division of AXA Banque in the same year. In 2000 BNP Paribas completely reorganized its Spanish market by selling off a number of unprofitable branches and consolidating others. This restructuring allowed the group enough finance to launch Global Risk solutions, another subsidiary of the new company, which was designed to aid its own subsidiaries and other companies in decision making within the global marketplace. In 2001 BNP Paribas Asset Management acquired a majority stake of Overlay Asset Management, a company incorporated in France, specializing in Currency Overlay. Later in that year, BNP Paribas spent $2.4 billion on buying the 55% of BancWest. During April 2002, BNP Paribas completed the $2.4 billion acquisition of United California Bank (UCB). In the same year, BNP Paribas acquired Cogent, the UK investment administration arm of AMP, the Australian based financial services group. In late 2003, BNP Paribas Peregrine launched a China investment banking business; a joint venture with Wuhan based Changjiang Securities. In January 2004 Arval PHH, BNP Paribas‟ car rental services subsidiary, acquired 100% of Arma, a company which provides long-term car fleet leasing services, with its main activity in the Netherlands. In March 2004, BancWest Corporation, a wholly owned subsidiary of BNP Paribas, acquired Community First Bankshares, a Nasdaq listed company in Western US. BancWest agreed to acquire Union Safe Deposit Bank, the next month. February 2005 saw the company acquire 50% of the holding company which controls the bank Turk Ekonomi Bankasi (TEB). In the following month, Atisreal UK, a BNP Paribas subsidiary, acquired part of the former Chesterton business. In April 2005, ABN AMRO and BNP Paribas announced that they had entered into an agreement whereby BNP Paribas Private Bank would acquire Nachenius, Tjeenk, an exclusive Dutch private bank, from ABN AMRO. In the very next month, the company acquired the Asia Pacific equity execution business of Calyon, Credit Agricole Group‟s corporate and investment bank. In June 2005, BNP Paribas purchased Commercial Federal for $1.36 billion, in order to reinforce its presence in the western US market. MAJOR PRODUCTS AND SERVICES BNP Paribas is a banking company with corporate, retail, and investment banking operations. The company‟s products and services are categorized under the following different segments: Corporate and investment banking: Advisory and capital markets Corporate finance Equities Fixed income Specialized financing Structured finance Export financing Commodities financing Project finance Retail banking: Retail banking Consumer finance Asset finance Mortgage financing Business equipment management Asset management and services: Institutional and private asset management services Insurance Global securities services Real estate services SWOT ANALYSIS BNP Paribas is France‟s largest listed banking group, ranking first in France in terms of net income and fourth in Europe for stockholder equity. The bank has a global presence that helps it reduce the exposure to the vagaries of the economic conditions of any one country. However, it is threatened by the adoption of the Basel II norms that will result in increased compliance cost for the company. Strengths Global presence BNP Paribas is one of the largest financial services institutions and operates from about 200 offices worldwide. Apart from France and other European countries the company also operates in countries like the US, Canada, Australia, Brazil, China, Japan, Egypt, Algeria and India. The benefit of having operations worldwide is two fold. One, that the company would not have to incur the establishment costs of setting up its services if it finds business prospects in any of these countries and two, that the company would not be exposed to the vagaries of the economic conditions of any one country of operations. Wide array of services BNP Paribas provides its customers with a wide array of services that ranges from corporate finance, export financing and advisory services to retail banking, mortgage financing, institutional and private asset management services. Such a wide array of services insulates the performance of the company from revenues generated by anyone service thereby assuring a relatively stable top line for the company. In addition, it also provides the company with access to a wider end market and enhanced crossselling opportunities. Strong market position BNP Paribas enjoys a strong market position. It is one of the largest banks in Europe in terms of market capitalization. BNP is one of the top 15 players in merger and acquisition transactions in Europe, being ranked number 13 among European players in terms of transaction volumes and number 11 as adviser to companies considering a merger or acquisition. It is also a leading player in France and Europe as a whole for primary equity business, holding the eighth spot in Europe and the top slot in France. Its French retail banking segment is one of the most popular retail banking networks. Such a strong market position enhances the company‟s bargaining leverage and gives it a competitive advantage as against its peers in the industry. Weaknesses Decline in interest income BNP Paribas has witnessed a considerable decline in its interest income. Interest income forms a major portion of the total revenue earned by any financial institution. In the case of BNP it forms about 63.9% of the total revenue earned in fiscal 2004. The company has witnessed a decline of about 8.1% (CAGR) in the 2000-04 period. Although there was a marginal rise of 4.3% in fiscal 2004, interest income earned by the company has not been able to come up to the 2000 level. If this trend in decline continues, the company may have to bear an adverse impact on its top line growth. High proportion of NPLs The amount of non-performing loans (NPLs) that the company has as a proportion to its loans is higher than many of its peers in the industry. In fiscal 2004, gross NPLs formed 6.3% of the total loans for the company. This proportion was much higher for the bank as against some of its closest competitors like ABN AMRO Holdings (2.9%), Barclays (2.3%) and Credit Suisse (4.8%). Such a high proportion of NPLs will not only negatively impact the return generated by the company on its assets but would also hamper the confidence of its shareholders. Low growth in revenues The company has posted a slower growth rate in its revenues as compared to some its closest competitors operating in the European banking industry. In fiscal 2004, the company achieved a growth of only about 6.9% in its revenues, whereas, some its major competitors like UBS, Standard Chartered and HSBC Holdings achieved a growth rate of about 25%, 27% and 23%, respectively. If the company continues to derive lower growth rate in its revenues as compared to its peers in the industry it may result in a loss of market share. Opportunities Acquisition of FundQuest In June 2005, BNP Paribas became a leading global player in open architecture with the acquisition of FundQuest in the US. BNP Paribas Asset Management has reached an agreement to acquire US based, FundQuest, with $10 billion in assets under management and administration.