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French Banks Eye U.S. Expansion After Year of Cuts

France's top banks are taking advantage of calmer markets to return to expanding in the United States, a year after deep cuts to their investment banks saw them lose ground to rivals in the world's biggest financial market.

PARIS, Dec 5 France's top banks are taking advantage of calmer markets to return to expanding in the United States, a year after deep cuts to their investment banks saw them lose ground to rivals in the world's biggest financial market.

BNP Paribas, France's largest bank, and closest rival Societe Generale have hired several top U.S. bankers in recent months, signalling a selective return to growth in areas like private banking, fixed income, equity derivatives or mortgage securitisations, according to bankers.

No one expects the empire building of before the euro zone debt crisis. But things have changed since summer 2011, when a market panic forced French banks to slash staff and U.S. dollar lending to trade, shipping and aviation.

Fears of an imminent euro zone collapse have faded, allowing French banks to raise dollars at affordable rates. And the risk of a regulatory crackdown at home by Socialist President Francois Hollande has also waned.

"They (French banks) must be thinking: 'Okay, we're starting at square one again, we're in a position now to see where, if we grow things on a balanced basis, we can ramp up again,'" said Andrew Lim, bank analyst at Espirito Santo.

BNP and SocGen were among the most ambitious banks in their expansion during the years of easy credit, leaving them heavily exposed when the market turned. They have respectively hacked $60 billion and $50 billion from their U.S. funding needs in a deleveraging which could be over if markets remain stable.

While both are looking at other regions - Asia for BNP and eastern Europe for SocGen - they want to recoup ground in a U.S. market where economic growth is stronger than Europe and which accounts for over half of global investment banking revenue.

But the focus appears to be measured, targeted expansion.

"Five years ago we would have hired a team of ten, twenty people and really gone for it ... Today we're looking at a smaller number of possible hires and really seeing where we can add value," said a banking source at SocGen.


The task is in some ways easier for BNP than for SocGen.

BNP, which has poached a Mizuho Financial banker to head its U.S. fixed income unit, is seen as more financially robust, with one of the highest regulatory capital ratios in Europe, and has a long-term dollar deposit base at its West-Coast retail franchise BancWest for potential funding.

However, BNP executives have said they are looking to build up fixed income operations in New York without having to rely on their own balance sheet resources by, for example, using private bond placements to match big U.S. institutional investors with European firms seeking funds.

SocGen, meanwhile, relies on bond markets to fund operations and is seen as less well-capitalised and more focused on trading activities - like commodities and equity derivatives - and hedge fund financing.

The bank is less vocal than BNP about its growth potential, though SocGen did poach several senior U.S. equity sales traders from Citigroup, RBS and UBS last month. SocGen is also hiring a trade finance associate, which some in the bank say is linked to its focus on natural resources.

A SocGen spokesman said the bank's commitment to natural resources and commodities was "unwavering".

"In the last two months, we in the recruiting industry have seen an uptick," said John Lee, a partner at Heidrick & Struggles in New York. "There is no broad-based hiring initiative but there is definitely hiring taking place across the board, both European and Japanese institutions."

Regardless of their ambitions in the United States, however, French banks are unlikely to have a cost-of-funding advantage against dollar-rich domestic banks or export-focused Asia.

"If you look at aircraft finance, or shipping, clients are extremely opportunistic ... They deal with whichever has the lowest price," said Yannick Naud, portfolio manager at Glendevon King. "I think Canadian and Japanese banks have the edge there."

There are also doubts the French will make a big return to the $2 trillion trade-finance market, which has seen big cutbacks by European players looking to reduce their exposure to a faltering global economy and to rebuild their capital bases.

"The deleveraging cutbacks just don't seem to be stopping," said Thierry Senechal, banking expert for the International Chamber of Commerce (ICC).

Bank for International Settlements data (BIS) shows that the best-capitalised European banks cut trade finance by 9.8 percent between the third quarter and fourth quarter of 2011.

However, Barclays' head of trade and working capital, Kah Chye Tan, said he was more sanguine about Europe's banks.

"A lot of these European banks continue to be very much in this business, if maybe a bit more moderate than before. One should never write them off."

Copyright 2010 by Reuters. All rights reserved.

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