French mull new retail banking giant

France’s fourth and fifth-largest banking groups –
Groupe Caisse d’Epargne and Groupe Banques Populaires – are
considering a merger that will form the country’s second-biggest
player in a move that would radically alter France’s retail banking
market.

The combined group would have 35.2 million retail clients (of
which 16 million are ‘active’ clients); 8,108 branches; €40 billion
($53.6 billion) in capital; €480 billion in savings and deposits;
net banking income of €17.5 billion; and close to 100,000 staff.
Under the plan, both brands and their respective branch networks
would remain untouched; only central functions would merge.

There are a number of reasons behind the deal, including the
liberalisation of the Livret A savings market (which makes up
around 12 percent of retail revenues at the Caisses d’Epargne), and
the desire to create a large, universal bank to reduce costs in the
face of a global financial slowdown. On 17 October, a week after
announcing the deal, Groupe Caisse d’Epargne also admitted it has
suffered a catastrophic €600 million loss in its derivatives
trading activities.

Investment bank Keefe, Bruyette & Woods said the move will
have a negative medium-term commercial impact on La Banque Postal.
“But we believe BNP Paribas will emerge unaffected from the
transaction given its momentum in the domestic market and
diversification of retail revenues [Italy, Belgium].”

The Groupe Caisse d’Epargne posted an 89 percent drop in
half-year pre-tax income, dragged down by substantial losses in its
wholesale banking unit (a loss of €394 million compared with a €584
million profit in the first half of 2007).