La Banque Postale, the banking subsidiary of France’s state-owned post office La Poste, which launched in January 2006 despite vehement opposition from the country’s commercial banks, is now the largest French bank by branches (around 17,000) and by customers (over 29 million).
But in a recent interview on French TV, La Banque Postale (LBP) CEO Patrick Werner stressed the firm faces significant challenges in the near future. On the one hand, LBP has been allowed by the government to broaden its service offerings into areas previously regarded as off-limits. But the competitive advantage the entity enjoys over its private sector rivals with the Livret A account is to be lost. The Livret A is a tax-free savings product guaranteed by the government and held by more than 46 million French citizens, currently distributed by only LBP and the mutual Caisse d’Epargne.
“2008 is being determined by two important decisions taken last year,” said Werner. “The first was the opening of the Livret A market to all banks from January 2009. And the second was the authorisation granted to La Banque Postale to offer consumer loans, something we should start offering by the end of 2009 or the early months of 2010.”
The choice of a partner to help it move into the credit market is one of the main challenges faced by the company this year, he said.
The Livret A market dates back to the early 19th century and is widely favoured by less wealthy customers – accounts can be opened with as little as €1.50 ($2.32). Its liberalisation, said Werner, will have an “important” impact on the firm’s activities. The only similar savings product on the market is Livret Bleu, offered by the mutual Crédit Mutuel.
Of concern to Werner is a perceived lack of a level playing field. While all banks will be able to participate in the Livret A market, only La Banque Postale will be forced to open Livret A accounts for any client, no matter the size of the deposit.
At stake is a market which LBP estimates generates 60,000 new customer accounts a year, which LBP will be forced to share with an increased number of rivals. In addition, Werner is concerned that existing LBP Livret A account holders may elect to transfer their business to other banks.
LBP’s results are likely to take a hit in 2009 as a consequence of the legislative changes, with some French banking analysts estimating that approximately six out of every 10 Livret A accounts at the bank have a deposit balance of less than €150 – amounting to 0.7 percent of the volume of the bank assets but at a cost of around 50 percent of the bank’s management expenses to administer.
According to Werner, the French government is sympathetic to LBP’s plight and has sought authorisation from the European Union (EU) to make payments to the bank to compensate for this obligation.
“But it is still far too early to say what will be the effect of the changes to the results of La Banque Postale,” Werner argued.
France’s most popular savings product
The country’s private sector banks have long sought to gain a share of France’s most popular savings product to boost their own retail results – as well as an opportunity to weaken their new rival – and last year gained the support of the EU which ordered the French government to end the distribution duopoly.
But despite the expected loss, LBP believes it can attract business away from the private sector banks, as it continues its transformation to a fully fledged retail bank.
In addition to entering the consumer finance sector, for which LBP received government approval in November 2007, the bank has also recently received authorisation to offer property and casual insurance for private clients. The green light was given by finance minister Christine Lagarde at the end of April, leading to LBP embarking on a search for an insurance sector partner; according to the bank it will aim to grab around 6 percent to 8 percent market share for home and auto insurance.
It has said it will be well on the way to achieving such a market share by 2010, and a range of life insurance policies has already been launched by the bank.
Moreover, the French government’s policy of persuading LBP to seek partnerships with private sector rivals has borne fruit, with LBP agreeing to form a joint electronic payments venture with SocGen in January.
LBP is also expanding its wealth management product range and has signed an agreement with wealth management specialists Oddo & Cie to set up a dedicated subsidiary, La Banque Postale Gestion Privée. According to LBP, the new company has already attracted around 700,000 clients of whom 9,000 have each invested sums in excess of €500,000.
Another sector of the market LBP is targeting is the youth segment. Its Bagoo range of accounts are aimed at customers aged 16 to 25, and had been snapped up by 900,000 customers by the end of 2007.
Strong results in 2007
In total across its product range, LBP client numbers increased by a net 850,000 in 2007, a 13 percent increase over 2006. Despite the credit crunch, LBP produced strong results in 2007, a year which it described as producing “sustainable development”, with net banking income up 5 percent year-on-year to €4.75 billion and earnings before interest and tax up by 17 percent to €514.5 million.
The bank also continues to stress that, in contrast to some of its best-known rivals, it has escaped unscathed from the subprime crisis. Indeed, for some time LBP was even touted as a possible “white knight” to help Société Générale to get out of the doldrums after its €4.9 billion trading scandal disclosed in January.
While the international business press concentrated on the possibility of a hostile bid for SocGen from banks including BNP Paribas, Crédit Agricole, UniCredit, Santander, and Intesa Sanpaolo, France’s track record for old-fashioned state intervention to create a national champion led to speculation that LBP could take a major stake in SocGen along with a French partner such as the insurer Axa.
If France was to witness anything approaching the sort of consolidation that has transformed Italy over the past two years, La Banque Postal will almost definitely have a significant role to play.