It has not been plain sailing for BNP Paribas in the US since an $8.9 billion settlement in 2014 for enabling transactions from sanctioned countries. But in Bank of the West, BNP Paribas retains one of the top 30 banks in the country, with $75.7 billion in assets. The US holding company, BancWest, which also includes First Hawaiian Bank, has close to 600 offices in 23 states.
Last year, BancWest’s revenues (in euro terms) rose 26.7% and it provided BNP Paribas with €910 million in pre-tax income, confirming its standing as one of the main contributors to the group’s results. That was more than either the Belgian or Italian businesses. It also enjoyed solid growth in the first quarter of 2016, with deposits up 5.1% year-on-year, and loans up 7.5%.
By comparison, Santander’s US business has been sputtering for the last three years. HSBC’s acquisition of Household International led to it having to sell almost half of its US retail branches and its credit card division. RBS sold its last remaining stake in Citizens Bank last year. Indeed, alongside BBVA with BBVA Compass, BNP Paribas is in a league of its own.
Many European banks are also exiting wealth management in the US. Barclays sold its US brokerage to Stifel last summer. Credit Suisse offloaded its US wealth management arm to Wells Fargo. Deutsche Bank sold Alex Brown to Raymond James. Other than UBS, only BNP Paribas is sticking around.
BNP Paribas says it wants to become one of the top five European banks in the US – which is typically unambitious of the French bank – but the truth is, it could well become one of the top three. That’s thanks to its ability to act like a community bank, a commercial bank and a global wealth manager all at the same time.
There are capital pressures, however. BNP Paribas is preparing for an IPO of First Hawaiian Bank, which analysts welcome for the capital boost, while fretting about the loss of future earnings. Some are even asking if the same may be planned for Bank of the West, although the bank’s global leadership dismiss this.
|Nandita Bakhshi, Bank of the West|
BNP merged the French Bank of California with Bank of the West in 1980. In 1998, First Hawaiian Bank merged with Bank of the West and a separate holding company was formed to include the two US entities – BancWest Corporation. Now, as other foreign banks in the US are being forced to establish an intermediate holding company, BNP Paribas has a head start.
Bank of the West passed the Federal Reserve’s Dodd-Frank Act stress tests in 2014 and in 2015. Santander stumbled at the stress tests, while Deutsche Bank failed last year.
Senior executives at BNP Paribas talk a lot about synergies and integration across divisions, but in the US analysts say that the decision to keep Bank of the West fairly separate and apply a hands-off approach has worked well. Its success is partly a happy accident of geography. Being headquartered in San Francisco has had distinct advantages when it comes to fintech and digital banking. Andy Harmening, vice-chairman of consumer banking, says Bank of the West has been investing in innovation for the last eight years on its own. It has been partnering with several fintech firms, as well as fintech incubator Plug and Play.
At the same time, in BNP Paribas, Bank of the West finds an enthusiastic partner. The French bank has invested heavily in technology and digitization across the world. It also has one of its L’Atelier BNP Paribas offices in San Francisco where it connects with tech entrepreneurs.
That commitment from the parent has given Bank of the West a boost. For example, the multi-channel customer relationship management platform for Bank of the West has been mutualized from that of BNP Paribas’ domestic market. Harmening says: “We are now able to use data to tell us what clients prefer as a channel – the branch, ATM, digital – and then we can build the user experience around that.”
It is a key differentiator for Bank of the West. The US regional banks have been slower than their European peers in adopting digital products and services – even though their customer base is arguably more receptive. Bank of the West was one of the first in the country to adopt photo bill-pay for mobile customers. It was also the first bank in the US to offer customers the ability to swipe and see their balance on their phones without having to log into their bank account.
But it could well be wealth management that is Bank of West’s most prized possession. Its wealth management assets have grown more than 20% every year since 2011 to reach $10.4 billion at the end of March 2016. In the last five years after BNP Paribas made the strategic decision to bolster the business, Bank of the West’s wealth management business has grown from 6,000 clients to 25,000 clients, 250 to 500 employees and from no specialist branches serving wealthy clients to having 15 centres across the region.
BNP Paribas would not have been able to grow so fast in US wealth without Bank of the West. “We have some very deep relationships with business owners – both in the small business area in the consumer bank, as well as the commercial banking business – that have really spurred our growth in wealth,” says Pierre Ramadier, head of wealth management at Bank of the West.
As BNP Paribas now prepares to IPO its Hawaiian bank, Kiri Vijayarajah, financials analyst at Barclays in London, asks if it might sell or spin off Bank of the West, too. “It would unlock a lot of value.” He says that retail banking is not an easy fit for any European bank in the US. “The divergent regulation, different rules about consumer protection and the inability to share back-office costs make it a hard case to fight for. Maybe digital will smooth out some of those challenges, but it’s a big if.”