BNP Paribas CEO Jean-Laurent Bonnafé tells why mergers and acquisitions are taking a back seat – for now – at the French bank.
“We have this DNA to be very open and ready to partner, because the universe is wide. When you have a nice idea, the best approach is to execute rapidly. So it’s better to have 25 per cent of a winning project delivered to market, than 100 per cent of a project that is maybe nice, but too slow to be the winner.” – Jean-Laurent Bonnafé.
TOO much of a good thing can lead to indigestion – this axiom extends well beyond gastronomical delights, to mergers and acquisitions in the corporate scene. And so it is that at BNP Paribas, the choice is to resist a rich appetite for large buyouts in the next few years.
For Jean-Laurent Bonnafé, chief executive of the French bank, there is a greater urgency that comes with transforming the market leader in the eurozone region into a more digital outfit.
In 2017, the bank announced that it would invest 3 billion euros (S$4.72 billion) in digital technology over the next three years. In particular, that would mean raising spending on digital initiatives by 50 per cent over that period.
“As with the story of any company, you have cycles. There are cycles in which organic growth is the better choice,” says Mr Bonnafé, speaking to The Business Times during his visit to Singapore when the bank celebrated 50 years of operations at the National Museum.
“There is a lot to do in terms of IT. You have to concentrate totally on that. You cannot at the same moment pretend to transform the bank, and merge another large company, because to merge nicely with another large company, you need to leverage all your skills. So, either do one or the other. And today, it’s very much the time to go for a digital transformation.”
To be sure, he does not dismiss bolt-on acquisitions, which the bank indeed has pursued in Europe. It acquired 50 per cent of General Motors Europe’s financing activities; all of a consumer credit specialist from Sweden called SevenDay Finans; and bought Strutt & Parker, a property consultant and real estate agency in the UK.
But these are rarely monster deals, with Mr Bonnafé saying that large and transformational M&A deals are “a bit out of reach”, if the bank wants to excel in its digital pursuits.
It’s why he has so openly rejected market talk that BNP Paribas would be tempted to take over its Frankfurt-based competitor Commerzbank.
In a Bloomberg article in June this year, Mr Bonnafé was asked if he would change his mind about a takeover if all the stars – particularly a right price and an accommodating regulator – were aligned.
“We are not children,” he had responded then, his voice reportedly soft but firm – and likely slightly staccatoed too, like how it would bounce off the echoey walls of the interview room in Singapore.
Close watch on costs
The French bank has indicated that going digital is a big part of its strategy, as the banking industry keeps a close watch on costs. The bank’s move would certainly align with the broader trend of branch closures, as traditional banks that have expanded by a brick-and-mortar network are counting the costs of having a large, physical presence, even as traffic into bank branches declines.
Hence, BNP Paribas has shut about 10 per cent of its French retail network from 2012 to 2016.
Mr Bonnafé has said the bank will look to bring about 3.4 billion euros of savings from its digital investments, and expects nearly 80 per cent of that saving to be recurring. This would help the company cut its cost-income ratio from 70.7 per cent in 2017, to 63 per cent by 2020.
As an indication of the pace of change, the bank has identified some 150 digital projects, of which 100 are already in the process of being implemented.
The optimism also comes as the bank sees more confidence in the French economy.
“The French president has a programme and a team that is very supportive of the real economy, and especially corporates. They have already delivered a number of key reforms in the labour market and in tax reform. They are pushing a lot in terms of encouraging innovation and digital technology,” says Mr Bonnafé. “So it has created a different mood. Trust is back – it can be seen and felt in the French economy.”
As it is, the bank has significant market share in covering European corporates with more than 1 billion euros in turnover. BNP Paribas is openly targeting investment flows from Germany’s Mittelstand – the bloc of small and medium-size businesses in the eurozone’s largest economy – taking advantage of some lead time it may have against its struggling European counterparts.
This strategy is also why it had set tongues wagging about BNP Paribas’ interest in Commerzbank, Germany’s second biggest listed bank. The acquisition would have, in theory, given BNP Paribas a firm foothold in its target market.
But as Mr Bonnafé told Bloomberg, that hypothetical acquisition would take two to three years for BNP Paribas to digest, pushing back the more pressing deadline of getting the digital strategy down pat.
Over in Europe, the bank ramped up its digital agenda by snapping up a majority stake in Gambit, a European provider of robo-advisory services. It has also launched new digital mobile banks in Europe, extending its mobile bank – Hello bank! – to other markets in Eastern Europe such as the Czech Republic.
Singapore also has a role in the French bank’s global digital strategy, speaking to the borderless potential of tech innovation. The French bank has set up an innovation lab here, which just last year developed half of the ten digital solutions that the bank rolled out to its wealth clients.
This includes myOnboarding, a mobile application that guides clients, prospective clients and private bankers through the client sign-up process, and MyWealth, an online and mobile application that allows clients to access the latest portfolio information, and view past transactions as well as equity research reports. There are plans to eventually combine certain digital products into a single platform.
Earlier this year, the bank set up a new investment fund to take direct minority stakes in fintechs. The fund, the size of which remains undisclosed, will also invest indirectly through venture capital funds that are pumping money into areas such as artificial intelligence, data analytics, blockchain, and cybersecurity.
“Banks cannot pretend to have all the good ideas. We can have some – but most often, you can see ideas coming from newcomers. The best way to respond is to partner,” quips Mr Bonnafé.
“It’s like the regular pharmaceutical companies. Biotech was the new way of delivering new drugs, and ultimately, all pharmaceutics partnered. It’s a cycle in which you have to be open, knowing that you cannot grow in all directions.”
Where there are no monster deals on the table, the partnership model is generally well favoured by the French bank. For Mr Bonnafé, speed to market is paramount, and so partnerships offer greater odds of success when a good idea has to be executed quickly.
“When we partner, we can become more domestic. It’s very difficult to become more domestic (on our own), because being domestic is the ability to understand the regulations of certain markets, certain cultures, and the way of doing business. You may have the right solution but you don’t know how to implement it locally. And in the service industry, everything is local. Even in investment banking, it is a type of proximity banking,” says the engineer by training.
“We have this DNA to be very open and ready to partner, because the universe is wide. When you have a nice idea, the best approach is to execute rapidly. So it’s better to have 25 per cent of a winning project delivered to market, than 100 per cent of a project that is maybe nice, but too slow to be the winner.”
The partnership model is on clear display in Asia, where the bank has joint ventures with Chinese firms such as Bank of Nanjing and Bank of Beijing.
It also has a partnership with State Bank of India in the form of SBI Life Insurance, which was listed just last year in India. The Asia-Pacific region is an obvious growth market for the bank.
Business from the region is expected to generate 4 billion euros in revenue by 2020 for the bank, up from 3 billion euros posted in 2016, with South-east Asia playing a key part in that strategy. BNP Paribas bases its South-east Asian operations out of Singapore.
“In Asia, we have a more global wholesale platform, and in some locations we tend to partner in a number of specialised ways,” says Mr Bonnafé. “We believe that the model is strong because it brings the bank diversification and resilience through the cycles, and it gives our counterparts a kind of global and comprehensive approach that is fluid and efficient.”
The bank will grow its franchise in areas such as infrastructure financing and private banking through locations such as Singapore, where it employs some 2,200 people. Its Asia Pacific campus is housed in two restored conservation buildings near Changi Airport.
About 40 per cent of BNP Paribas’ revenue booked in Asia continues to be generated through cross-border flows, which speak to the benefits of continuing to have a global platform for clients in this region.
In the area of infrastructure financing, for which BNP Paribas brings clear expertise from Europe to Asia, Mr Bonnafé flags that more work remains in creating bankable projects here.
“Ultimately, can it be refinanced through the bond market? If you want to refinance in the bond market, it has to be considered as an asset with a yield,” he says. “Today, because there is abundant liquidity, it’s okay. But we know that liquidity will be, to some extent, less abundant, in time. So we better try to look at the situation that way. And some risks are out of reach.”
But more broadly, the bank will look to hum along at a steady pace in the broader corporate and institutional banking space – a steady growth that Mr Bonnafé says will fit in with BNP Paribas’ ambition to grow its wealth management business in Asia.
The aim is for the private-banking business in Asia to rank among the top five private banks here in about three years.
“If you look at Asia, wealth is created through entrepreneurship,” he adds. “So when you are good at servicing entrepreneurs globally, then naturally, like a synergy, you’d grow the wealth management. It’s a kind of natural evolution.”
Director and Chief Executive Officer,
BNP Paribas Group
Engineering, École Polytechnique and the École des Mines
1987-1992 Senior Officer, French Ministry of Industry
1992-1993 Technical Adviser to Minister of Trade and Industry
1993-1997 Senior Investment Banker, BNP
1997-2000 Head of Strategy and Development, BNP
2000-2002 Head of the post-merger integration process of BNP with Paribas, BNP Paribas
2002-2006 Head of the French Retail Banking division and Member of BNP Paribas Group Executive Committee, BNP Paribas
2006-2008 BNL Managing Director and Member of BNP Paribas Group Executive Committee, BNL Gruppo BNP Paribas
2008-2011 Chief Operating Officer, BNP Paribas
Since 2008 Board of Directors, Carrefour
2009-2011 CEO, Fortis Bank
Since 2010 Member of BNP Paribas Group Board of Directors
Since 2011 CEO, BNP Paribas