A Powerful Platform for Growth and Creation of Value
BNP Paribas is on the move. As the merger proceeds, the executive committee of BNP Paribas has determined the major orientations of the Group's corporate strategy and organizational framework, which comply with the commitments BNP made to the market during the public tender offer. The Board of Directors of BNP approved these major orientations on Monday 20 September. They will be implemented as part of the drive to strengthen BNP Paribas's leadership positions in Europe. The Group's activities will be organized into six core businesses:
- Retail banking in France
- Retail banking worldwide
- Specialized financial services
- Wholesale and merchant banking
- Private banking, asset management, and insurance
- Paribas Capital (private equity and expansion capital)
- BNP Paribas has set itself the goal of creating shareholder value by ambitiously seeking profitable growth while controlling allocations of shareholders' equity, costs, and risks.
To reach this goal, BNP Paribas has devised a project based on modern values that will motivate staff members and promote progress for customers.
1. BNP Paribas: A European Leader in its Core Businesses
In terms of stock market capitalization, BNP Paribas ranks 4th in the euro zone and 9th in Europe, whereas individually, BNP and Paribas ranked 11th and 12th in the euro zone and 19th and 20th in Europe, respectively.
The BNP Paribas Group is Europe's third-largest and France's top bank in terms of net income. It is also Europe's number-three bank in terms of shareholders' equity.
Thanks to its critical mass and the broadened scope of its core businesses, BNP Paribas is entering the European banking industry's consolidation phase in a position of strength. As a multi-business, multi-brand, multi-channel group, BNP Paribas aims to be a reference in the area of banking innovations for customers.
Retail Banking in France
This core business comprises the retail banking activities of BNP and Banque de Bretagne, as well as logistics, marketing, collection, and other support functions provided to those entities.
The modernization of this core business, serving nearly 6 million individuals and professionals, will be accelerated. It will benefit from the dynamics of the BNP Paribas Group: an expanded product range and enhanced capacity for innovation, and the pooling of certain support functions in conjunction with the "Specialized Financial Services" core business.
Retail Banking Outside France
This core business comprises BancWest (the fifth-largest bank in California and the second-largest in Hawaii, with 220 branches and 800,000 customers) and BNPI-SFOM (330 branches and 500,000 customers in Africa, the Middle East, and the Indian Ocean). It has considerable scope for growth via acquisitions in other parts of the world.
Specialized Financial Services
This core business is made up of the specialized subsidiaries Cetelem, UFB Locabail, BNP Lease, BNP Factor, Arval, UCB, Cortal, and Banque Directe, which operate in the areas of consumer credit, leasing, mortgage financing, factoring, e-brokerage, and direct banking. Most of these companies have a substantial European presence and expertise in cooperating with other institutions in these fast-growing lines of business. Cetelem, with operations in 16 countries, is Europe's leading provider of consumer credit.
With support from the Group's offices around the world, this core business will pursue an ambitious expansion policy in Europe and selected countries in other regions. It aims to develop a number of transverse relationships with the retail banking businesses in France and abroad in order to boost revenues and cut costs.
The activities carried out by Specialized Financial Services are complementary with those conducted by the two Retail Banking businesses (France and worldwide). Each of these three core businesses has a large customer base and a variety of distribution channels, and each applies an industrial approach to transaction processing. They are increasing the recurring portion of the Group's revenues. Their outlook for profitability and growth warrant the increased allocation of shareholders' equity that they will receive.
Wholesale and Merchant Banking
This core business comprises the commercial banking, wholesale banking, and capital markets businesses of BNP and Paribas, which will be merged.
In this area, the BNP Paribas Group is one of Europe's top players, with a major presence in the Paris and London financial markets. It is also a very significant player in Asia. It is a leading institution in a number of lines of business, such as structured finance (5th in Europe and 9th worldwide for syndicated loans), equities (4th worldwide on the primary market for European shares), foreign exchange and debt securities (4th worldwide for Eurobond issues), and commodity financing (2th worldwide).
The Group intends to expand its presence in these lines of business at the European level. Each business line will be given precise targets for use of funds and return on allocated funds. The emphasis will be placed on controlling costs, achieving economies of scale, and further improving risk control while respecting the cultures of each of these business lines.
Private Banking and Asset Management
This core business brings together the international private banking, asset management, insurance, and securities custody businesses of BNP and Paribas.
BNP Paribas holds strong positions in these areas. It has a presence in 20 countries in the fields of private banking and asset management. It ranks 4th in France for life insurance. It is Europe's No. 1 and the world's 6th largest institution for securities custody.
An active expansion policy will be applied in all of these lines of business at the European level, and in many cases, in Asia and the Americas as well. By merging, BNP and Paribas will achieve significant cost savings and score major revenue gains.
This core business will also manage the Group's real estate activities. BNP Paribas is a leading player in France through such well-known brands as Meunier, Klépierre, and Ségéce.
Paribas Capital
This core business combines the private equity investment activities of both Paribas Affaires Industrielles and Banexi. It will steadily sell off a significant portion of its shareholding portfolio and concentrate more on raising funds from outside investors. Paribas Capital is actively developing its business of raising investment funds.
2. A Concerted Effort to Ensure Profitable Growth
The central target of BNP Paribas's corporate strategy is to create shareholder value. The Group has set itself a deadline of 2002 for achieving a return on equity (after tax) of at least 16% and a goal of average annual earnings per share growth of more than 16% over the period 1998-2002.
BNP Paribas will pursue a policy of dynamic redeployment of capital and selective expansion. Synergies in terms of revenues and costs will be sought very actively.
Redeployment of Capital
By 2002, the BNP Paribas Group will increase the portion of shareholders' equity allocated to Retail Banking in France, Retail Banking Worldwide, Specialized Financial Services, and Private Banking and Asset Management to 57%, from its current level of 43%.
The Wholesale and Merchant Banking core business will continue to grow, while refocusing on the most profitable segments of its activity. The amount of shareholders' equity allocated to this core business will decrease by 12% between now and 2002. Over the same period, the shareholders' equity allocated to Paribas Capital will be cut by one-third.
Share Buy-Back
A program to buy back EUR 2 billion of shares will be undertaken in 2000 as a function of market conditions. Depending on the amount of excess capital available in 2002, another EUR 2 billion share buy-back program will be conducted at that time.
Cutting Costs and Boosting Revenues
During the initial weeks of cooperation between the staff of BNP and Paribas, the two institutions announced the possibility of achieving even greater synergies than those foreseen in the first BNP Paribas project, while complying with all commitments, particularly in the area of employment. BNP Paribas has set itself a target of achieving synergies of EUR 850 million in the period to 2002, corresponding to EUR 700 million in cost savings and EUR 150 million in added revenues. Cost reduction will be equal to 8% of the Group's total expenses and 14% of those of the merged activities. EUR 250 million of the synergies identified concern information technology. Twenty percent of the synergies will be achieved in 2000 and 50% in 2001.
An allowance has been made for EUR 806 million of one-time restructuring charges before tax. In addition, the amortization of EUR 183 million in intangible assets will be accelerated.
A Resolute Policy of Innovation in Technologies and Distribution Channels
The merger of BNP and Paribas is creating one of Europe's most advanced banks in terms of new banking technologies, featuring BNP Net (France's number-one service, with 70,000 customers connected via the Internet), e-Cortal (a European securities brokerage platform offering access to Europe's nine largest stock exchanges, being launched in September), the electronic "Business Village", and BNP's dynamic role in e-commerce and smart cards.
The Search for Growth Opportunities, Agreements and Alliances in Europe and Worldwide
Though it has already defined a set of priorities and goals, the Group stands ready to seize growth opportunities in Europe and around the world, and to take an active part in the consolidation of Europe's banking industry. With this in mind, BNP Paribas will capitalize on its alliance with Dresdner Bank and its large network of relations and agreements.
3. Organizational Framework and Modern Values Aimed at Motivating Staff and Promoting Progress for Customers
The BNP Paribas Group will be organized in way that enables its lines of business to adjust rapidly to developments in their markets. The organization will allow for growth and encourage initiative, while ensuring tight management. The Group will be characterized by:
- responsibility given to operational entities that are in contact with customers and the markets
- strong coordination to ensure risk control and secure all the cost and revenue synergies planned.
- A Respectful and Motivating Human Resources Policy
- The BNP Paribas Group will respect its employment and financial commitments. Synergies will be achieved without resorting to layoffs in France. At the same time, recruitment will be maintained at a level that is commensurate with the Group's international growth and that compensates for the numerous staff members who are expected to retire in France early in the next decade. These goals can be attained both through forward-looking management, which has enabled BNP to achieve its turnaround without laying off staff, and through a favorable trend in natural departures.
The Group's career and remunerations policy will encourage staff members to adhere to the company project. It will provide senior managers with open careers managed at the global level. It will offer motivating remuneration with a sizable variable component. Performance inducements will include a stock option plan that is expanded to cover a large number of executives and that is contingent upon the success of BNP Paribas, updated incentive mechanisms, and more widespread employee shareholding.
A Benchmark Banking Group for All Customer Categories
BNP Paribas is a multi-brand group federating diverse corporate cultures and customer approaches. This diversity is reflected in the Group's organization into six core businesses. BNP Paribas aims to be a benchmark bank in terms of service quality, innovation, and ethics in all its lines of business and for all of its customers.
A Realistic Timetable for Implementing the Company Project at the Start of 2002
Joint working groups of BNP and Paribas staff members are now being set up. They will be operational between the end of September and the end of October to handle the practical aspects of the merger. It will take two to three months to validate the detailed plans for each activity. Within five months, the company project will become operational in all areas, as expected.
BNP Paribas is on the move. As the merger proceeds, the executive committee of BNP Paribas has determined the major orientations of the Group's corporate strategy and organizational framework, which comply with the commitments BNP made to the market during the public tender offer. The Board of Directors of BNP approved these major orientations on Monday 20 September. They will be implemented as part of the drive to strengthen BNP Paribas's leadership positions in Europe. The Group's activities will be organized into six core businesses:
- Retail banking in France
- Retail banking worldwide
- Specialized financial services
- Wholesale and merchant banking
- Private banking, asset management, and insurance
- Paribas Capital (private equity and expansion capital)
- BNP Paribas has set itself the goal of creating shareholder value by ambitiously seeking profitable growth while controlling allocations of shareholders' equity, costs, and risks.
To reach this goal, BNP Paribas has devised a project based on modern values that will motivate staff members and promote progress for customers.
1. BNP Paribas: A European Leader in its Core Businesses
In terms of stock market capitalization, BNP Paribas ranks 4th in the euro zone and 9th in Europe, whereas individually, BNP and Paribas ranked 11th and 12th in the euro zone and 19th and 20th in Europe, respectively.
The BNP Paribas Group is Europe's third-largest and France's top bank in terms of net income. It is also Europe's number-three bank in terms of shareholders' equity.
Thanks to its critical mass and the broadened scope of its core businesses, BNP Paribas is entering the European banking industry's consolidation phase in a position of strength. As a multi-business, multi-brand, multi-channel group, BNP Paribas aims to be a reference in the area of banking innovations for customers.
Retail Banking in France
This core business comprises the retail banking activities of BNP and Banque de Bretagne, as well as logistics, marketing, collection, and other support functions provided to those entities.
The modernization of this core business, serving nearly 6 million individuals and professionals, will be accelerated. It will benefit from the dynamics of the BNP Paribas Group: an expanded product range and enhanced capacity for innovation, and the pooling of certain support functions in conjunction with the "Specialized Financial Services" core business.
Retail Banking Outside France
This core business comprises BancWest (the fifth-largest bank in California and the second-largest in Hawaii, with 220 branches and 800,000 customers) and BNPI-SFOM (330 branches and 500,000 customers in Africa, the Middle East, and the Indian Ocean). It has considerable scope for growth via acquisitions in other parts of the world.
Specialized Financial Services
This core business is made up of the specialized subsidiaries Cetelem, UFB Locabail, BNP Lease, BNP Factor, Arval, UCB, Cortal, and Banque Directe, which operate in the areas of consumer credit, leasing, mortgage financing, factoring, e-brokerage, and direct banking. Most of these companies have a substantial European presence and expertise in cooperating with other institutions in these fast-growing lines of business. Cetelem, with operations in 16 countries, is Europe's leading provider of consumer credit.
With support from the Group's offices around the world, this core business will pursue an ambitious expansion policy in Europe and selected countries in other regions. It aims to develop a number of transverse relationships with the retail banking businesses in France and abroad in order to boost revenues and cut costs.
The activities carried out by Specialized Financial Services are complementary with those conducted by the two Retail Banking businesses (France and worldwide). Each of these three core businesses has a large customer base and a variety of distribution channels, and each applies an industrial approach to transaction processing. They are increasing the recurring portion of the Group's revenues. Their outlook for profitability and growth warrant the increased allocation of shareholders' equity that they will receive.
Wholesale and Merchant Banking
This core business comprises the commercial banking, wholesale banking, and capital markets businesses of BNP and Paribas, which will be merged.
In this area, the BNP Paribas Group is one of Europe's top players, with a major presence in the Paris and London financial markets. It is also a very significant player in Asia. It is a leading institution in a number of lines of business, such as structured finance (5th in Europe and 9th worldwide for syndicated loans), equities (4th worldwide on the primary market for European shares), foreign exchange and debt securities (4th worldwide for Eurobond issues), and commodity financing (2th worldwide).
The Group intends to expand its presence in these lines of business at the European level. Each business line will be given precise targets for use of funds and return on allocated funds. The emphasis will be placed on controlling costs, achieving economies of scale, and further improving risk control while respecting the cultures of each of these business lines.
Private Banking and Asset Management
This core business brings together the international private banking, asset management, insurance, and securities custody businesses of BNP and Paribas.
BNP Paribas holds strong positions in these areas. It has a presence in 20 countries in the fields of private banking and asset management. It ranks 4th in France for life insurance. It is Europe's No. 1 and the world's 6th largest institution for securities custody.
An active expansion policy will be applied in all of these lines of business at the European level, and in many cases, in Asia and the Americas as well. By merging, BNP and Paribas will achieve significant cost savings and score major revenue gains.
This core business will also manage the Group's real estate activities. BNP Paribas is a leading player in France through such well-known brands as Meunier, Klépierre, and Ségéce.
Paribas Capital
This core business combines the private equity investment activities of both Paribas Affaires Industrielles and Banexi. It will steadily sell off a significant portion of its shareholding portfolio and concentrate more on raising funds from outside investors. Paribas Capital is actively developing its business of raising investment funds.
2. A Concerted Effort to Ensure Profitable Growth
The central target of BNP Paribas's corporate strategy is to create shareholder value. The Group has set itself a deadline of 2002 for achieving a return on equity (after tax) of at least 16% and a goal of average annual earnings per share growth of more than 16% over the period 1998-2002.
BNP Paribas will pursue a policy of dynamic redeployment of capital and selective expansion. Synergies in terms of revenues and costs will be sought very actively.
Redeployment of Capital
By 2002, the BNP Paribas Group will increase the portion of shareholders' equity allocated to Retail Banking in France, Retail Banking Worldwide, Specialized Financial Services, and Private Banking and Asset Management to 57%, from its current level of 43%.
The Wholesale and Merchant Banking core business will continue to grow, while refocusing on the most profitable segments of its activity. The amount of shareholders' equity allocated to this core business will decrease by 12% between now and 2002. Over the same period, the shareholders' equity allocated to Paribas Capital will be cut by one-third.
Share Buy-Back
A program to buy back EUR 2 billion of shares will be undertaken in 2000 as a function of market conditions. Depending on the amount of excess capital available in 2002, another EUR 2 billion share buy-back program will be conducted at that time.
Cutting Costs and Boosting Revenues
During the initial weeks of cooperation between the staff of BNP and Paribas, the two institutions announced the possibility of achieving even greater synergies than those foreseen in the first BNP Paribas project, while complying with all commitments, particularly in the area of employment. BNP Paribas has set itself a target of achieving synergies of EUR 850 million in the period to 2002, corresponding to EUR 700 million in cost savings and EUR 150 million in added revenues. Cost reduction will be equal to 8% of the Group's total expenses and 14% of those of the merged activities. EUR 250 million of the synergies identified concern information technology. Twenty percent of the synergies will be achieved in 2000 and 50% in 2001.
An allowance has been made for EUR 806 million of one-time restructuring charges before tax. In addition, the amortization of EUR 183 million in intangible assets will be accelerated.
A Resolute Policy of Innovation in Technologies and Distribution Channels
The merger of BNP and Paribas is creating one of Europe's most advanced banks in terms of new banking technologies, featuring BNP Net (France's number-one service, with 70,000 customers connected via the Internet), e-Cortal (a European securities brokerage platform offering access to Europe's nine largest stock exchanges, being launched in September), the electronic "Business Village", and BNP's dynamic role in e-commerce and smart cards.
The Search for Growth Opportunities, Agreements and Alliances in Europe and Worldwide
Though it has already defined a set of priorities and goals, the Group stands ready to seize growth opportunities in Europe and around the world, and to take an active part in the consolidation of Europe's banking industry. With this in mind, BNP Paribas will capitalize on its alliance with Dresdner Bank and its large network of relations and agreements.
3. Organizational Framework and Modern Values Aimed at Motivating Staff and Promoting Progress for Customers
The BNP Paribas Group will be organized in way that enables its lines of business to adjust rapidly to developments in their markets. The organization will allow for growth and encourage initiative, while ensuring tight management. The Group will be characterized by:
- responsibility given to operational entities that are in contact with customers and the markets
- strong coordination to ensure risk control and secure all the cost and revenue synergies planned.
- A Respectful and Motivating Human Resources Policy
- The BNP Paribas Group will respect its employment and financial commitments. Synergies will be achieved without resorting to layoffs in France. At the same time, recruitment will be maintained at a level that is commensurate with the Group's international growth and that compensates for the numerous staff members who are expected to retire in France early in the next decade. These goals can be attained both through forward-looking management, which has enabled BNP to achieve its turnaround without laying off staff, and through a favorable trend in natural departures.
The Group's career and remunerations policy will encourage staff members to adhere to the company project. It will provide senior managers with open careers managed at the global level. It will offer motivating remuneration with a sizable variable component. Performance inducements will include a stock option plan that is expanded to cover a large number of executives and that is contingent upon the success of BNP Paribas, updated incentive mechanisms, and more widespread employee shareholding.
A Benchmark Banking Group for All Customer Categories
BNP Paribas is a multi-brand group federating diverse corporate cultures and customer approaches. This diversity is reflected in the Group's organization into six core businesses. BNP Paribas aims to be a benchmark bank in terms of service quality, innovation, and ethics in all its lines of business and for all of its customers.
A Realistic Timetable for Implementing the Company Project at the Start of 2002
Joint working groups of BNP and Paribas staff members are now being set up. They will be operational between the end of September and the end of October to handle the practical aspects of the merger. It will take two to three months to validate the detailed plans for each activity. Within five months, the company project will become operational in all areas, as expected.