Just as BNP Paribas and Société Générale did a few weeks ago, Crédit Agricole has confirmed the layoff rumours that have been rampant for some time now. The bank will lay off 2350 people worldwide with 850 in France alone. The cutback will mostly take place in investment banking. 21 foreign subsidiaries will be closed and 1750 persons will be made redundant.
If the public statement of the Green Bank (we are stopping our trading activities to concentrate ourselves on the retail banking business) has been calibrated to please the public, it masks several other strategic abandonments which will have serious ramifications on the bank’s profitability during the coming years.
The french bank unveils a new corporate and investment banking model centred on serving major clients and the closure of operations in 21 countries
Crédit Agricole which had already announced the suppression of its activities in aeronautic financing, project and shipping financing carried out in US dollars will also eliminate its activities in Equity and Commodity derivatives. “It is a major mistake” according to Etienne Bairr[1], an outgoing senior executive of one the main French banks.
“French banks have lost an economic war currently taking place over the financial landscape. It is not so much the layoffs that are the problem but the suppression of activities in strategic parts of the world and more broadly the scrapping of financing activities in profitable sectors such as aeronautics during the coming years. How will we justify leaving such a profitable sector in the next 10 to 20 years? This is especially true in Asia and the gulf region where this sector’s growth is expected to amount in the tens of billions” adds Etienne Bair.
Several Asian, American and even European banks have voiced their delight at this massive withdrawal of French banks. It is especially the case of Standard Chartered Bank. The latter, which has a long term presence in Asia and the Middle East where it achieves almost 80% of its profits, sees the opportunity to grab part of the business left by its outgoing competitors. “As a result of the stricter regulation and the escalating sovereign debt crisis in the Eurozone, we are expecting a massive deleveraging from European banks” has recently confided Richard Meddings, Standard Chartered’s financial director, to Reuters. He is expecting to grab market shares in cash management, project financing and import / export financing. He is also planning to increase the sale of high value added goods. This would not only be targeted to the bank’s first 100 clients but the next 500 as well.
Etienne Bair shares this view. “Some corporate companies are already complaining of the absence of French banks during financing operations. This will penalize the banks’ underlying activities (advisory, the sale of hedging products through derivatives) which have strong profit margins. Most clients, when they obtain financing, carry out their hedging operations on fixed income, foreign exchange and commodities with the banks that have participated in the financing process. The French banks therefore run the risk of seeing a sharp drop in profits caused by the scrapping of these activities. The banks that resist will then be able to increase their margins.
If the activities of the French banks in the United States and Asia were indeed profitable, they were very capital consuming. French banks were also finding it more and more difficult to access financing in US dollars since they were being gunned down by American monetary funds. The latter have been the first to take hostile action by withdrawing almost 100 billion dollars from European banks (mainly French ones) between the end of May and the beginning of August thus increasing the pressure on them.
“Instead of helping to improve dollar liquidity in the overall financial system, the Fed became worried about the possible leaking of funds from the US towards Europe through the subsidiaries of some European banks. It woke up too late by decreasing its currency swap rates with other central banks and the damage was already done” analyses Etienne Bair.
Must we see some kind of conspiracy in all this as suggested by Laurence Parisot, the chief of the MEDEF? “A conspiracy? I don’t know but we live are in an extremely competitive world and the French banks have been naïve. They should have cooperated among themselves and refused the application of these new iniquitous rules that are totally counterproductive and absurd. American banks have never complied to the Basel II agreements, it’s a political choice! French and European banks should do likewise with Basel III” answers Etienne Bair.
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