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BNP Paribas' Eyes US Retail Banks

(Excerpted from sister publication IDD)

Over breakfast in late August on the morning BNP Paribas would announce its June earnings, CFO Phillipe Bordenave contentedly told the bank's story. Beginning with its strength in the European league tables and continuing on to BNP's gaping investment banking Jaws Effect' he said the bank had much to be pleased with. But the portion of the discussion that caught my ear was the bank's US retail banking strategy. In the following email Q&A, he elaborated on BNP's efforts in this area.

IDD: I'd like to focus on your company's retail banking strategy. BNP Paribas has been building up its presence in the Western US. Can you walk me through the process and how you've been expanding there?

Bordenave: BNP Paribas has been building up its presence in the Western US since the early 1980s via a string of acquisitions and organic growth. This process gathered pace in the late 1990s as First Hawaiian Bank and California's Bank of the West merged forming a new holding company BancWest. With the acquisition of United California Bank in 2002, Community First Bankshares in 2004 and Commercial Federal in 2005 the footprint has considerably expanded and BancWest now runs a 740-branch network spanning 20 states west of the Mississippi River.

BancWest is now the seventh largest commercial bank in the Western US. It operates under two brand names - Bank of the West for continental US and First Hawaiian Bank for Hawaii - and is headquartered in San Francisco.

Beyond BancWest, BNP Paribas is building its presence in corporate and investment banking from its New York platform. It is growing organically leveraging the strength of its customer relationships and leading product expertise. Energy, commodities, export and project financing, as well as equity derivatives are leading the way in this process, but that is another story.

IDD: What makes the Western US compelling to BNP Paribas? When did you first enter and do you have a size in mind for how large you might build there?

Bordenave: BNP Paribas has long ago identified the advantages and growth opportunities arising from the US retail banking market. Regardless of the moment we are at in the present cycle, the US offers a compelling risk:reward ratio. The medium- and long-term economic and population growth prospects are strong for a limited-risk exposure given the model we have adopted. The western half of the US, west of the Mississippi River, where we are located, demonstrates even stronger growth dynamics than the Union as a whole. On top of this the consolidating nature of the US banking market offers further cost cutting opportunities that are difficult to find in other regions across the world.

Our growth strategy is unchanged. It is a combination of organic growth and selective acquisitions, if they meet the group's strict acquisition criteria. One can just add that our move out of California into the larger Western half of the US has naturally broadened our options.

IDD: Explain, as much as possible, how you've generally structured these transactions? Are you capitalising on BNP Paribas' balance sheet and using cash and/or equity? Or do you prefer using debt for these buys?

Bordenave: It is important to understand that we are not taking bets on the EUR/USD exchange rate as we proceed with our acquisitions in the US. The value of each acquisition is assessed on a stand-alone basis against strict financial criteria that ensure rapid value creation for the group. The sellers are paid cash but the USD dollars used to do so are borrowed in their majority to hedge our currency risk. Thus the value of our assets once denominated in EUR, our "base" currency, has not dropped in line with the USD/EUR.

IDD: After the deal is made, what structures do you put in place to control costs and achieve what you're looking to accomplish fiscally in the retail market?

Bordenave: With a track record of over 15 deals successfully finalized, the process is now well mastered by BancWest's teams. The branches and commercial teams of each bank acquired are integrated into BancWest. In parallel the IT systems are switched to ours, and all the new branches are rebranded. This latter process can be achieved within months, or even weeks in some recent instances. Delays up north due to snow were the only drawbacks encountered for our last rebranding campaign!

According to the size and location of the target, middle and back offices are recombined, relocated or purely closed. Expanding the footprint to the east has also enabled us to move some of our own back-office functions out of the higher cost bases in which we were into lower cost base ones, such as Fargo and Omaha. Beyond cost-cutting, attention is increasingly being devoted to learning from the best practises of each legacy bank network to enhance organic revenue growth throughout.

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