French banking giant BNP Paribas is in the midst of a major expansion in Germany and is pushing ahead despite paying a record $8.9 billion fine to U.S. authorities earlier this summer over charges that it ignored U.S. sanctions against Iran and other countries.
In late August, BNP announced it had acquired an 81 percent stake in Germany’s DAB Bank, nearly doubling its online customers in Germany to 1.4 million. While the fine has cost the bank a “significant part” of its reserves, the BNP Chief Operating Officer, François Villeroy de Galhau, told Handelsblatt Global Edition his bank remains fully committed to its goal of hiring some 500 people and increasing revenue by 50 percent by 2016.
Making your mark in Europe’s largest economy has become unavoidable for a bank with global aspirations. “It’s as simple as that,” Mr. Villeroy de Galhau said. Asked about Europe’s banking union, the BNP executive said he doubts that the European Central Bank’s new role as pan-European finance regulator will lead to consolidation in the industry.
Handelsblatt: BNP last year announced a major expansion for Germany. What is different about your new approach here?
François Villeroy de Galhau: Firstly, this is not a completely new story for us. We have been active in Germany since 1947. When we announced our growth plan last year, we had €1.1 billion in revenues in 2012 and around 3,500 employees in 12 different business lines, so our presence here was already quite significant. But what we wanted to change was to implement our own version of German unity. Our business model is clearly a universal banking model, with cross-selling.
We also decided to increase our size, adding 500 more colleagues and a target to grow our revenues by about 50 percent by 2016, to reach €1.5 billion. That means growing at least 8 percent each year. Even if there is a good growth in Germany, it’s a very ambitious target. But we are confident we will deliver this goal and when you have a look at the employees, we are now talking about more than 4,000 colleagues.
Would you consider buying additional units, perhaps smaller German banks?
We have already made some focused but significant acquisitions. But clearly the priority of our plan is organic. We believe we have significant room for organic growth, through increased cross-selling in Germany and increased expansion outside Germany through our one-bank network.
But if an opportunity to quickly expand your German business should come along?
Look at DAB. But don’t conclude that we are preparing any such plans. We don’t need acquisitions to deliver on our German targets.
What are the concerns of Germany’s small- and medium-sized “Mittelstand” companies about universal banks such as yours? How can you persuade them to work with you?
The keyword for the Mittelstand is “Nachhaltigkeit,” or sustainability. When I meet with CEOs or CFOs from the Mittelstand, there are often two questions. The first is: “Are you serious about your commitment to Germany? Does this mean that if the next financial crisis comes along, the next problem, you will leave?” They think back to other banks and other stories from the past.
We are quite convincing … that we are serious about Germany. We were very consistent throughout the financial crisis in the last seven years. And throughout our discussion with the U.S. authorities until the settlement before the summer, the first question from our German customers was: “Will you maintain, unchanged, your development plan, including for Germany?” The answer was clearly, and consistently, yes.
Second, the German Mittelstand has a healthy distance to the financial markets. They are more cautious. This is why it is very important for us as a universal bank to say that you are not obliged at all to use financial markets, but sometimes it can be useful for you. You can use markets in an efficient way for your economic benefit. We stress that this doesn’t mean that your company will become financial, because they are worried about that.
Is there an inward-looking or local orientation among Germany’s small- and medium-sized businesses, the “Mittelstand,” that is difficult to reach? Are they skeptical about dealing with a universal bank?
I don’t see in the German Mittelstand a local orientation. It’s not at all the case. They are very internationally oriented and not only in Europe. They are very interested in our presence in Turkey, in the U.S., in Asia, so clearly this is an advantage we have for the German Mittelstand.
But part of our commitment is also that we want to succeed in Germany with a German team. We always say we are multi-domestic. When you are in France, you must be French. In Germany, you must be German. But we open the windows to the world thanks to our single network.
Why do you want more German business? Isn’t the competition here already pretty fierce?
Germany is the strongest and most international-oriented economy in Europe. It’s as simple as that. It would be impossible to think that we could offer a pan-European network for corporates without being powerful and local in Germany. This is very important not only for our German customers but for our French, Italian, American customers.
Are you taking advantage of the weakness of the German competition?
No, clearly the competition in Germany is strong. There are many good banking actors here – both German and international. We don’t think that this is an easy market, not at all. But it’s a very important and growing market and we are not afraid to face competition.
Has the U.S. fine imposed on BNP had any impact on your expansion plans?
No. We were cautious enough in our development to have a safety margin, financially. While we used a significant part of this safety margin to pay the fine, we have said very clearly that, firstly, we will be able to maintain a solid solvency ratio of 10 percent, despite the fine. And second, we are committed to our development plan and our strategy, and this was the most important thing for our customers. It’s a general commitment, but especially in Germany.
Do you expect the European Central Bank’s new role as European supervisor, the start of “banking union,” to lead to a wave of consolidation in the European banking industry?
I wouldn’t make any forecasts. We think banking union has been a tremendous task for the regulators, but also for us. We welcome this progress. It means cutting a good part of the link between sovereigns and banks. And second, we would expect a defragmentation of the euro zone financial market to come from banking union. In the crisis years, each national regulator tended to protect its own savings. If we now have the same supervisor, we should expect to have a better circulation of savings throughout the euro zone, as it will be better supervised and protected.
But do you share regulators’ concerns about European banks becoming too big?
At BNP Paribas, we don’t think that size is pertinent. It’s not an adequate measure of the safety or solidity of banks. The diversity of the business model and the safety of the risk management processes are much more important. We don’t believe at all that size is a bad thing. You have to look at the opportunities. We were one of Europe’s consolidators with the acquisition of Fortis in 2009, but in a cautious manner.
You have entered the German retail banking market on a purely digital platform. Is this the only way to succeed in retail banking at a time when interest rates in Europe are so low?
I don’t think so. Obviously, the low interest rate environment is less favorable for retail banking. This is not a secret. But we are a long-term industry. When you have deposits and customers; they are hard to acquire. There is strong competition, but generally you then get deposits over a long duration, and so it means that the orientation of long-term interest rates is very important. We know they are very low now, but if I look five years or 10 years from now, we will probably have a higher interest rate.
From a strategic point of view, therefore, the challenge of interest rates is not in my view the most striking or the strongest challenge for retail banking. The challenge of digitalization is probably bigger. We introduced Hello bank!, our digital bank in four countries last year. Germany is probably the country where we have been most successful and we are developing more rapidly than expected. The announced DAB acquisition is obviously a strong accelerator of that.