BNP’s shrewd operator turns to italy

“Listening to these two speaking about each other’s businesses can be very entertaining. It’s a bit like the psychological battle between José Mourinho and Arsène Wenger,” comments one prominent financier, comparing the rivalry between Alain Papiasse of BNP Paribas and Philippe Collas of Société Générale to that between two of Europe’s best-known football coaches. The latest broadside was fired by Mr Papiasse, responsible for 18,000 employees in 50 countries and all asset gathering activities at his French bank, in response to statements from Mr Collas about his rivals’ lack of core skills in asset management, lack of focus in private banking and failure to penetrate securities services . Mr Collas talked of a wide-open investor services marketplace, with no single dominant pan-European player. Mr Papiasse took the opportunity to set the record straight. “We are in Italy, Germany, France, Portugal, Spain, the UK, Austria and Switzerland,” he says, counting some of the markets in which his securities services division has made its footprint. “Let’s be frank: SocGen are just in France and Luxembourg – that’s it. It’s obviously a big drama for them not to be pan-European, but we are. “They acquired the UniCredit business several months ago. We bid for that too, but did not want to pay the price SocGen paid, as it would reduce our returns to shareholders.” But SocGen was prepared to pay a premium for the acquisition, because it had made a strategic decision to expand its “very limited international presence”, claims Mr Papiasse. These exchanges, entertaining as they may be for French finance-watchers and the media, also serve a more important purpose. With his belief in his group’s products and services, and a healthy disdain for key rivals, Mr Papiasse gives his staff the belief that they are playing for the right team. But while BNP is number one in the European back office market, with ?3,430bn under custody, ?570bn administered for mutual funds, and revenues growing 15 per cent annually, the group can do nothing to fight the cost/income ratios intrinsic to this technology and people-heavy business. Typically only 20 per cent of revenues from custody, outsourcing and fund administration go to the bank’s bottom line, as opposed to 50 per cent from asset management. Mr Papiasse is trying to swing the odds in his favour by concentrating on acquiring new clients, not in the traditional institutional area, but among private banks, broker dealers and wealth managers, which should lead to increased profitability. “We are just starting to outsource back office operations for private banks,” he confirms, lighting a Dunhill cigarette in his office, overlooking the Paris Opera house. “If somebody wants to implement private banking operations for high net worth individuals, then we have an offer for them.” This is also an indication of the direction of the entire AMS (asset management and services) division, since it came under Mr Papiasse’s watchful eye after his dramatic arrival from Crédit Lyonnais in 2005. His career at Lyonnais, where he rose first to head asset management and then investment banking, had spanned a 30-year period, but he resigned before the merger with Crédit Agricole. Inclusive policy When he was appointed to the executive committee of BNP Paribas by chief executive Baudouin Prot, replacing Vivien Levy-Garboua, who moved into a global compliance role, it was to implement a more aggressive, growth approach for a new economic cycle. It was also hoped he could add sparkle to some of the group’s backwaters. Before his arrival, some private bankers felt as if they were in a forgotten corner of a vast empire. Now they feel somebody cares about them once more. This is a common refrain throughout the organisation. “Alain Papiasse does not have the flamboyance of Philippe Collas, but he has an equal presence,” says one senior manager in the asset management division. “He has a real pragmatism and down-to-earth quality. But when he speaks to you, and explains his strategy, his eyes are shining, and you feel that you are part of something important.” Within private banking, this strategy is about being a tier 2 player, below the UBS/Credit Suisse/Julius Baer Swiss axis, but competing with other cross-border wealth managers ABN Amro, SocGen and Deutsche Bank, for a share of the increasingly diversified portfolios of high net worth individuals. He rejects the notion, popular among consultants, that private banking should be left to a handful of global institutions who have the critical mass and reach to contribute 40 per cent of their bank’s balance sheet from this activity. “The richer you are, the more diversified you want to be, and you move from one institution to several,” says Mr Papiasse. With ?150bn under management for wealthy clients, he confirms that this low capital business line, while not enjoying the group’s best rate of return, is as profitable as the recently acquired fund selection unit, FundQuest, or Cardif, his life insurance arm. “I don’t believe private banking is an entity for which value creation in the group can be limited to the profits it generates,” he states. “You must remember that private banking is also a distribution channel, plus an adviser for other units of the bank, and it allows you to distribute capital market products such as equity derivatives and bonds.” The notion espoused by M&A advisers such as Ray Soudah at Millenium Associates, that the high valuation of wealth management assets should encourage the likes of BNP to sell its Banque Privée franchise to the Swiss giants, and invest the cash elsewhere, is clearly not part of Mr Papiasse’s philosophy. “When you sell a private banking operation, even if you get a good price for the business, if you sell it to a competitor, you will lose additional business related to other areas of the bank,” he says. “And given the current rate of return, what else would you do with the money? There are no other alternatives at this time for investing cash, which are as profitable as this one. We are not in the mind today to sell the private banking operation, as there are growth prospects in front of us.” The bank distribution channel providing most excitement – and early commercial success for Mr Papiasse – is one outside France. The purchase of the Italian Banca Nazionale del Lavoro (BNL) banking chain by BNP Paribas during 2006 was considered to be a major coup in terms of retail banking, loans and mortgages. But under Mr Papiasse, BNP Paribas Asset Management (BNP PAM), which runs e290bn, was one of the first business lines to benefit from the takeover, having raised more than ?600m in a matter of weeks into a balanced fund product sold through branches to Italian customers. “We wanted to reassure BNL banking staff about their future,” comments Mr Papiasse. “We had to show them that BNP Paribas would bring them value in terms of innovative products, to help them create and increase market share, and to help them enhance their image in their domestic market.” Previously, BNL was perceived as a very traditional Italian bank, believes Mr Papiasse. “Monti dei Paschi, Unicredito – these banks were seen as innovative forces, but not BNL. So as soon as the takeover was discussed, we could see the opportunities. BNL savings and asset management products were losing market share compared with their peer group. One of the issues we saw was that the asset management unit of BNL was a captive one, with the bank being the only customer. In such as captive situation, you are not in the best position to capture the best ideas of the market, as there is no discussion with external distributors.” Road testing BNP PAM, on the other hand, derives much of its assets under management from its externally-distributed ?16bn Parvest, Luxembourg-registered fund range, sold through distribution partners across Europe and Asia. This has enabled it to road-test many more investment concepts, rather than just acting as a production plant for a single internal client. “BNL is a new distribution network for us. It has been under-used, with a big shortage of products, which can generate new flows from customers, plus there was almost no link between their asset management unit, the corporate world and private banking.” The “excitement”, says Mr Papiasse, comes not just from acquiring an Italian distribution network, but one with a low rate of penetration from financial products, and therefore offering an “avenue for development.” It is this immediate ability to identify opportunities, to turn a depressing situation into an optimistic one, which the board at BNP Paribas hopes will justify its decision to appoint Mr Papiasse. Not that he is a risk-taker. He has shown he will not buy at silly prices and that he is prepared to be patient, but when he needs to move, he will move quickly.

Alain Papiasse: ‘the richer you are, the more diversified you want to be’