In the biggest bank merger in French history, the Societe Generale (SocGen) and Paribas married their fortunes this week, surpassing the "green bank", Credit Agricole, as the country's biggest financial institution, becoming the world's fourth largest bank on an equity basis and Europe's third largest in terms of assets.
President Jacques Chirac commented on the merger as he awarded the rank of Commander of the Legion of Honour to Alexandre Lamfalussy, a Paribas board member and the former President of the European Monetary Institute. Mr Chirac said he wanted to see French banks "develop their muscles and rally together", and the surprise marriage attained this objective.
The Minister of Finance, Mr Dominique Strauss-Kahn, was also delighted. His office issued a statement saying that the union, which will be called SG Paribas, "fulfils the minister's oft expressed desire for a strong French financial sector at the heart of the euro". Both of France's main financial dailies, Les Echos and La Tribune, saw the merger as a necessity since the advent of the euro. "A French bank in the front ranks of world competition," La Tribune crowed. "We hadn't seen that for years . . . It was about time that tricolour finance claimed a place among the global elite." As the editorialist Pascal Aubert noted, in the race for size in a globalised world, all companies are confronted with the challenge of "being huge or not existing at all" - even if the question of "what for?" remains secondary.
But why did it take the French so long to follow the example of British, German, Dutch, Spanish and Italian bankers in concluding mergers? "We were beginning to despair of the ability of French executives to overcome their ego battles and conclude real marriages of equals," Les Echos said.
Paribas was valued at £11.8 billion (€15 billion) in the agreed share exchange. SocGen is offering five of its own shares for every eight Paribas shares, and Paribas shareholders have been won over with a 17 per cent premium over the bank's average share prices in January.
The agreement was negotiated in secret - and in record time - between January 14th and January 31st by Mr Daniel Bouton, the chairman of SocGen, and Mr Andre Levy-Lang of Paribas. The 48-year-old Mr Bouton had wanted to merge with another bank since taking over from Mr Marc Vienot in November 1997. A first approach to Paribas in 1997 failed. Mr Bouton considers himself the "midwife" of the merger and called SB Paribas "a beautiful animal".
During his earlier career as a civil servant, the cigar-smoking Mr Bouton was the youngest Frenchman ever to achieve the rank of Inspecteur des Finances, at age 23. He later worked closely with former Prime Minister Alain Juppe. Mr Bouton was praised this week for engineering a compromise not unlike that reached last May for the presidency of the European Central Bank. As the elder of the two, Mr Levy-Lang will be the chairman of SG Paribas until 2002, when he will retire at age 65.
In the meantime, Mr Bouton will be vice-chairman - but with powers virtually equal to those of Mr LevyLang.
Mr LevyLang, who is 61, became the CEO of Paribas in 1990 and saw the investment bank through two loss-making years in 1991 and 1995. He started his career at the French Atomic Energy Commissariat, and studied at the Ecole Polytechnique and Stanford University in California.
For several years, Mr Levy-Lang had resisted overtures from other banks, saying Paribas wanted to maintain its independence.
But he was under pressure from Mr Claude Bebear, the chairman of Paribas's biggest shareholder, the insurance company AXA, to take a marriage offer from the Banque Nationale de Paris (BNP), of which AXA is also the biggest shareholder. Mr Bebear accepted the switch to SocGen - and a seat on the board of SG Paribas - with good grace.
After Mr Levy-Lang raised profits dramatically over the past three years, Paribas was much solicited. In addition to BNP, the state-owned Credit Lyonnais also hoped to link up with it. After a French government bail-out estimated to have cost nearly £23.6 billion, the Credit Lyonnais is to be privatised between now and June. Its chairman, Mr Jean Peyrevelade, says he would prefer "complementary partners" to "direct competitors" like the BNP or the new SG Paribas. But the French finance ministry will have the last word in Credit Lyonnais's fate.
At the press conference announcing the merger, Mr LevyLang said SG Paribas would like to participate in the privatisation of Credit Lyonnais. It will take time for the glacial relations between Mr Bouton of SocGen and Mr Peyrevelade to thaw. Mr Bouton had filed an objection to the Brussels-approved French bail-out of Credit Lyonnais with the EU Court of Justice in Luxembourg. As merger negotiations neared completion last Sunday, Mr Bouton was summoned to the French finance ministry where he promised Mr Strauss-Kahn - as a condition for the merger - that he will drop his opposition to the Credit Lyonnais bail-out.
Because Paribas has no retail branches, its merger with SocGen is not expected to result in job losses among the banks' 78,000 French employees. But if a retail bank such as BNP or the new SG Paribas should take over Credit Lyonnais, analysts predict a "bloodbath" of jobs. Both of Paribas's jilted suitors - BNP and Credit Lyonnais - imply they may now look outside France for partners. More mergers appear certain.
Following SG Paribas's coup on the Monopoly board of French finance, only the US giants BankAmerica and CitiGroup and the British-owned Hongkong and Shanghai Banking Corp (HSBC) surpass its £16.5 billion in shareholders' equity. In Europe, the Swiss UBS and the German Deutsche Bank are tied for first place, with over £500 billion in assets each, followed by SG Paribas with £471.8 billion in assets. In terms of stock exchange capitalisation, however, at £24.2 billion SG Paribas ranks only eighth in Europe - a weakness that its executives will move quickly to correct. They promise to raise the group's 1998 return on equity of 11.3 per cent to 15 per cent by 2000.
