Big banks will always be criticised for their complexity, and French banks’ desire to be all things to all people makes them particularly prone to baffling complication.
Crédit Agricole is probably the least fathomable in France – not just because of its multifarious business model but also because of its French regional mutual bank ownership, overlapped by a listed hub, Crédit Agricole SA (CASA).
Whether they think it is successful or not, analysts and investors with experience of covering its equity and debt can trip up when trying to explain Crédit Agricole’s governance. They seem to revert to pre-formed opinions, sometimes about the fundamental validity of competition by such a big mutual group.
This is a real problem, at least for outsiders. It is sometimes hard to know the questions, never mind the answers, at Crédit Agricole.
For example, does mutual ownership make it well-positioned for European expansion or more predisposed to acquisition cock-ups – perhaps because the lack of dividend-hungry shareholders might mean it has more cash to burn?
Its 2006 acquisition of Greek bank Emporiki, in retrospect, gives support to the cock-up theory. For evidence that this is a recurring problem, detractors also point to its earlier exit from Argentina in 2002.
In Italy, on the other hand, it is doing extraordinarily well, particularly in comparison with arch-rival BNP Paribas, which is earning less there despite having paid more for its Italian bank, Banca Nazionale del Lavoro, bought around the same time that Crédit Agricole acquired Cariparma.
Crédit Agricole’s success in Italy is mainly thanks to having bought a better bank – one based primarily in Parma, while BNL is based in Rome. If this came from a better understanding of the local market, it helped that CASA already had a strong link to the Italian establishment through a shareholder pact with Banca Intesa, which merged with local rival Sanpaolo IMI in 2007. CASA bought Cariparma as part of that merger’s anti-trust requirements, before selling its remaining 5% stake in Intesa Sanpaolo in 2012.
However, entry to foreign markets through minority equity stakes in other countries’ establishment banks is less of an option today, due to higher regulatory charges on such investments. In any case, it was never an infallible method, as the partner could be flawed, which was the case in Portugal’s Banco Espírito Santo.
Crédit Agricole’s more convincing advantage is the independent eurozone expansion of CASA businesses such as consumer finance and asset management, which enjoy economies of scale based on the French regional network. This also helps test the water in neighbouring markets.
It remains difficult to export a French universal model (where the mortgage relationship is the basis for sales of everything from consumer loans to life insurance) across Europe while there is incomplete banking union and deep-seated national idiosyncrasies in mortgages.
Naturally, the next step of efforts to centralize cooperative networks should be to unify them on a eurozone-wide level, but centralization still results in conflict even at a national level. This reflects Crédit Agricole’s other known unknown, which is whether reforms by CASA chief executive Philippe Brassac have decisively reunited the listed central entity with the regional banks, or whether the latter will come to worry again about CASA’s autonomy as its international expansion rises and falls.
Brassac’s ascent was all about preventing dissension in the group by reconnecting CASA to its regional founders. He has done so in part by uniting the boards of CASA and the regional banks’ federation through a single chairman and deputy chairman, while CASA has also returned the 25% stake it took in the regional banks at its IPO. Nevertheless, there are still two boards.
As Brassac approaches retirement early in the next decade, clashing visions for the group’s future may yet herald a new civil war. Meanwhile, the closed parliaments of the federation make the group’s internal politics as impenetrable as ever.