Is France’s retail banking market set to go through a major upheaval in the wake of the $7.1 billion Société Générale (SocGen) trading scandal? Could the country undergo the same sort of consolidation that has transformed Italy over the past two years?

Given the threat to consumer choice and competition in France if other French banks swallow SocGen, the political wall the French establishment has quickly erected to deter any foreign interest and, now, the discounted rights issue SocGen announced on 11 February, a sale of SocGen seems unlikely – unless more subprime-related losses or even deeper embarrassments are revealed. Executive chairman Daniel Bouton, under fire over the lack of effective risk management at SocGen’s trading division, has insisted the bank can remain independent.

Amine Tarazi, head of banking research centre LAPE at Limoges University, said BNP Paribas or Italy’s UniCredit were credible contenders to take on SocGen’s retail division. But he told RBI: “Although a potential SocGen link-up with BNP Paribas might reduce competition further in the French retail market, it would create a national champion which could probably compete better on a Europe-wide basis, which is something the French government would like. But the rights issue which has been announced now makes it less likely there will be a takeover.”

An attractive retail banking franchise

SocGen – created in 1864 after a decree from Napoleon III – undoubtedly has an attractive, profitable retail banking franchise. It had 2,953 branches, representing about 10 percent of the French market, at the end of 2006. Around 750 of these branches come under the Crédit du Nord brand, a regional banking network 80 percent owned by SocGen (and 20 percent by Dexia) which serves a mix of retail, professional and business clients.

SocGen also boasts a dynamic, fast-growing international retail banking and consumer finance unit focused largely on emerging economies in Central, Eastern and Southern Europe. In October last year the group was granted permission to set up a life insurance operation in Russia; the month before it opened the latest in a long line of consumer finance operations, this time in Croatia (see RBI 578). The group’s consumer finance arm currently operates in 23 countries.

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A tie-up with BNP Paribas would create a French business with over 5,000 branches, though a significant number of their branches overlap, particularly in Paris, where 40 percent of BNP Paribas’s retail customers are based. A tie-up with Crédit Agricole would be even more difficult – Crédit Agricole would not be allowed to increase its French retail activities due to competitive constraints in the French market.

One possible non-French suitor, HSBC, may even be considering scaling back its French operations, as first mentioned in RBI (see RBI 583). HSBC has around 800 branches in the country, small compared to the likes of La Banque Postale (around 17,000), Crédit Agricole/LCL (9,000), Crédit Mutuel/CIC (5,000), Caisse d’Epargne (4,700), SocGen, and BNP Paribas (2,200).

Reports have suggested HSBC is now looking to sell half of its retail banking franchise, though an HSBC spokesman told RBI the reports were market speculation “at this stage”, adding the UK banking group was “committed to maintaining a strong presence in France”.

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