Look at the tennis ball, not the scoreboard
When Crédit Agricole hired Philippe Brassac in 1981, he remembers telling his friends and family in his home in rural southeastern France that he was going to work for the world’s largest bank.
Now chief executive of the group’s listed central vehicle, Crédit Agricole SA (CASA), Brassac knows his firm will never reclaim that status, due to the growth of China and the effect of the US’s 1994 removal of the Depression-era prohibition of acquiring banks in different US states.
“We were the biggest bank in the world by assets; we bought one of the biggest, Crédit Lyonnais, and now we are the 10th biggest,” he observes with a twinge of irony.
Crédit Agricole is still the world’s biggest mutual bank, mobilizing the 39 regional mutual banks across France that form its core and the legacy of more than two decades of acquisitions by CASA. It remains the second biggest banking group in the eurozone, after BNP Paribas, although in France it is many times bigger than BNPP.
Brassac still sees Crédit Agricole as an organization apart: “I never say I’m a banker; I say I work for Crédit Agricole.”
That is why in an almost decade-long stint at the top of the group Brassac has tried to exploit its bulk by better integration – including in governance – between the regional banks and CASA. He has been at the head of a campaign to end the relative independence of CASA.
“Now it’s a challenge for us to be aware of the DNA that allowed us to be that size and not just to follow other competitors – to wrestle against the banalization of our culture,” he says.
“How did we succeed to make this tiny bank, 100 years ago financing farmers in France, into the 10th largest bank in the world?” The answer is an approach he calls “usefulness as necessity.”
“Farmers created this bank to provide loans to other farmers when they didn’t have access to the traditional banking system. It was a question of life or death.”
He says the same desire to fulfil all its clients’ financial needs saw the bank enter the residential mortgage market in the 1960s and 1970s, gaining a third of the market as other players still shunned that sector.
“Usefulness and universality are in the DNA of Crédit Agricole,” he says. This is what lies behind the bank’s aim to target clients from the most modest to the wealthiest, in any region, and from large businesses to ordinary households. It seeks to provide all their financial needs, from small-town cash machines to big capital market transactions – in contrast to the pickier strategies of its peers.
“The principle of universality created the relationship model,” says Brassac. “We want to be in a lasting and global relationship with our customers. This has worked marvellously. Thanks to that we have the number one market share in France.”
A narrower focus could mean the bank pushing products that might not be best suited to its customers: real estate investments, for example, when they needed life insurance.
“The clients decide what’s best for them,” he says. “It’s necessary for loyalty.”
The average Crédit Agricole regional bank customer, according to Brassac, has about eight or nine products from the group. Some of these activities – asset management, corporate and investment banking and consumer finance – may be more profitable than others. But they are all necessary to be what he calls “a complete bank”, and he says “investors understand that.”
Deliberations over where to invest, according to Brassac, should start with the question of what is the utility and then ask what is the profitability. There should be “a virtuous circle between usefulness and profitability”, as in any big company in a liberal economy, according to him. “Many competitors – not just banks – have forgotten the first point.”
Brassac complains that too few observers, such as analysts and regulators, ask how a bank has high profitability. But it is impossible to raise return on tangible equity constantly, especially above the mid teens. Profitability should instead be high enough to stabilize the tier-1 capital ratio, while making sustainable gains in market share; and, incidentally, CASA’s return on tangible equity is unusually high by European bank standards at almost 13% in 2018.
Things like the cost-to-income ratio cannot be an objective in themselves.
“Look at the tennis ball, not the scoreboard,” he counsels.