Crédit Agricole

91-93 Boulevard Pasteur
75015 Paris
France
(1) 43-23-52-02
Cooperative
Incorporated: 1988
Employees: 73,700
Assets: FFrl.02 trillion

France’s “green bank” was nicknamed for its roots in agriculture. Crédit Agricole, composed of the Caisse Nationale de Crédit Agricole and 90 regional banks, which together own 90% of the Caisse Nationale, is a unique cooperative organization and one of the most important banking groups in France.

In the mid-1800s, it became clear that there was a need for agricultural Crédit in France, especially after a crop failure in 1856, which left rural areas in dire straits. One of the main causes of low production was a lack of sufficient Crédit for farmers, who often could not meet banks’ normal Crédit requirements. In 1861, the government attempted to remedy this problem, asking Crédit Foncier to establish a department expressly for agriculture. But the newly formed Societé de Crédit Agricole accomplished little. By 1866, though some steps towards improvement had been suggested, the outbreak of the Franco-Prussian War prevented their implementation. The society folded in 1876.

Later, several financial cooperatives sprang up independently among farmers, operating in rural towns on a system of mutual Crédit. In 1885, the first society for agricultural Crédit was founded at Salins-les-Bains in the Jura; the maximum amount of Crédit a farmer could get was FFr500, the price of a yoke of oxen. By the end of the century, when talk of modernizing France’s agricultural economy became more urgent, it was decided that this system of localized Crédit was more suitable for the rural population than Crédit emanating from a big central bank.

In 1894, the Chamber of Deputies proposed a law to organize personal or short-term rural Crédit, based on the methods of the small Crédit societies already in existence. The law formalized the requirements for the societies’ formation, made them exempt from taxes, and gave them a monopoly on state-subsidized loans to farmers. In 1897, the Bank of France made funds available to the banks through the minister of agriculture, and in 1899, a law was passed to create regional banks to act as intermediaries between the local societies and the minister of agriculture. The local cooperatives were self-governing societies with limited liability. Their members were mostly individual farmers. Each local cooperative was affiliated with a regional bank, where it transferred all deposits and obtained funds for loans. The local banks elected a committee to control the regional banks, which were mainly responsible for medium- and long-term loans. Thus, the hierarchy of Crédit Agricole was established.

One of the reasons Crédit Agricole was so successful was its reliance on individual farmers. In the mid-1800s most of France’s agricultural produce came from small farms rather than large estates, and the French government wanted to preserve the small family farm for several social and economic reasons. For instance, it was widely believed that small farmers cultivated the soil most intensively and so made better use of it. It was also thought to be better to have many small family farms than to create a ’proletariat’ to work on large farms. Nevertheless, France’s agricultural methods were in need of modernization, and Crédit Agricole helped small farmers buy new equipment and supplies to improve production.

In 1910, a law established long-term personal Crédit for the purchase of land to encourage young men to farm. Only small holdings could acquire these loans, which could not exceed $1,600, and only young farmers were eligible; their characters were the basis for their Crédit.

When World War I broke out in 1914, the European banking system was under severe duress due to difficulties with the gold exchange. However, gold was still in circulation in France and the Bank of France was able to increase its issue of notes, restoring some financial order. Throughout the war, agricultural production was at a minimum, and Crédit Agricole, still a young institution, was able to survive only through continued support from the government. Agricultural output did not regain its prewar level until 1930.

In 1920, a law was passed to organize the Office National du Crédit Agricole, a national society run by civil servants and the elected representatives of the regional banks but controlled by the government—the minister of agriculture would name its director. Office National du Crédit Agricole also became responsible for the distribution of treasury loan funds and for rediscounting the short-term loans of local and regional societies. In 1926, the name was changed to Caisse Nationale de Crédit Agricole (CNCA).

As Crédit Agricole grew in resources and capacity, it began to help not only individual farmers but also the cooperative trade movement gaining ground among agricultural groups. These new agricultural cooperatives, which organized industries in a way similar to unions, could often not raise the money to organize, and they needed Crédit Agricole’s support. In turn, the cooperatives helped France’s recovery after the war.

World War II hurt agriculture less than the first war had, and after the war, there was a period of rapid growth, spurred on by Crédit Agricole’s loans. Between 1941 and 1945, under the Vichy government, a Bank Control Commission was established and attempts were made to prevent the creation of new banks or branches. After 1945, however, the Bank of France and the other main banks were nationalized. A hierarchy was born, with the Ministry of Finance and the Bank of France at the top, giving the government the ability to sway the distribution of Crédit. In this sense, it won even more power to help further Crédit Agricole.

After the war, agriculture underwent a massive modernization plan. Crédit Agricole played a major part by supplying capital for fertilizer, equipment, electrification, and improved water supplies. Since agricultural Crédit was subsidized by the government, and due to the quality of Crédit Agricole’s decentralized commercial network, agricultural institutions had the most rapid expansion rate of all the banks. Between 1938 and 1946, the capital funds of the regional societies increased from FFrl.6 billion to FFr28 billion. Crédit Agricole extended its medium- and long-term loan operations and the government established special loans for farm equipment, causing a big increase in the number of farmers driving tractors.

Financing for small farms continued; as late as 1958, cooperatives were favored over large farms. But France’s farm productivity was below that of most other European countries, and some blamed the low productivity partially on the Crédit advantages given to small farms, which kept competition at bay. Earnings did not improve and the industry remained dependent on loans.

About this time, the government began to apply stringent lending ceilings to the whole financial system to restrain the money supply and hold down inflation. This led many banks to diversify into overseas business and the Eurodollar market. A boom in French exports also created a demand for French banking expertise in the export markets. Crédit Agricole, however, held back at first from international expansion, while growing rapidly with the French economy.

In 1966, the state decided to allow Crédit Agricole to widen its operations to become more flexible than a bank strictly for farmers. Under the new reform, Crédit Agricole was allowed to make loans to individuals and organizations not specifically connected with agriculture. It was also allowed to create subsidiaries. One of the most important subsidiaries it created was the Union d’Etudes et d’Investissements, which used its resources to finance individual investments.

In 1967, the government announced that all resources collected by Crédit Agricole’s regional and local banks, previously deposited in the French Treasury, would now be deposited with the Caisse Nationale de Crédit Agricole.

In 1971, the Union d’Etudes et d’Investissements, with an eye on important developments in the food processing business, created another subsidiary, L’Union pour le Developpement Regional, which was mainly to provide loans to agricultural and food processing industries or other similar operations in regions where they would create jobs.

In July of the next year, the minister of finance, Giscard d’Estaing, warned Crédit Agricole about its diversification, pointing out that its purpose must stay mainly agricultural and its activities balance financial and social profit, a recurring political theme in Crédit Agricole’s development. Other large banks complained about Crédit Agricole’s monopoly on farm Crédit and its tax-free status, which had allowed it to grow into one of the largest banks in France, while those concerned about farm aid worried that the bank’s purpose would be diffused. Critics blamed Crédit Agricole’s expansion on the other banks’ inertia and politicians’ reluctance to attack Crédit Agricole for fear of losing the support of farmers. By 1975, Crédit Agricole had begun its international activities, focusing mainly on foreign agricultural loans and export companies.

In 1977, when the U.S. dollar was low, Crédit Agricole ranked briefly as the biggest bank in the world. In 1978, Crédit Agricole’s profit of FFr400 million was more than the other three main French banks combined. The bank had begun to finance housing (it is now the leading mortgage lender in France), silo construction, and exports, and had also become a money market lender. After other French banks campaigned for several months against Crédit Agricole’s advantages, the government finally curtailed those privileges. Crédit Agricole’s surpluses began to be taxed as profits, and for three years, the bank was prohibited from opening new branches in towns where it had no official purpose and competed unfairly with other banks.

The compensation the government offered may have added more to Crédit Agricole’s growth than the privileges that were taken away. Before the new rules, the bank could only make direct loans in communities of 7,500 people or fewer, but under the new restrictions that limit was extended to 12,000.

Credit Agricole continued to push forward with international expansion. In 1979, it opened its first international branch, in Chicago; London soon followed, and a New York City branch opened in 1984. By then, Crédit Agricole was also extremely active in funding development in rural areas for roads, telephones, and airports, and the government was encouraging the bank to help out small industry.

By 1981, Crédit Agricole had several strong subsidiaries: Segespar, which headed the investment-and-deposit service group; Voyage Conseil, a French travel agency; Eurocard France, a payment-card company; Soravie, an insurance company for sales in local branches; Unimat (now Ucabail) and Unicomi, which financed equipment and industrial and commercial building; UniCrédit, which provided loans for businesses; and Union d’Etudes et dTnvestissements, now heavily involved with rural development.

In January, 1981, Crédit Agricole’s charter was changed again to allow the bank to provide loans to companies with fewer than 100 employees, whether or not they were connected with agriculture. The government also eased its Crédit limits for farmers and stockbreeders, and Crédit Agricole was no longer limited to lending in towns with fewer than 12,000 inhabitants.

However, this wider range was balanced by new limits. Crédit Agricole’s tax bill was put in line with those of other corporations, at 50% of its profits. In addition, some of the bank’s earlier surplus earnings had to be channeled back into the government’s loan subsidies.

In May, 1981, the Socialists won the national election. Soon all major French banks that weren’t already nationalized became state controlled, and over the next few years, the government imposed a domestic policy of economic austerity in an attempt to reduce inflation, renew industry, and balance its foreign trade account.

The next year, Crédit Agricole’s foreign assets rose by almost 60%. By 1982, only one-third of its funds went to agriculture. Crédit Agricole had already acquired significant experience in the euroloan market, and at the beginning of 1983, it ranked among the most prominent banks in Europe in this area. By 1984, Crédit Agricole had opened foreign branches in North America, Europe, Asia, Latin America, Africa, and the Middle East.

Some Crédit Agricole members were upset by the bank’s strengthening international force. In 1984 an official of a farmer’s union told Business Week that “given the dramatic situation of hundreds of thousands of farmers, Crédit Agricole has better things to do in France.” Nonetheless, Crédit Agricole management insisted that international business could only strengthen the company’s ability to help farmers in France.

In 1985, Crédit Agricole established a subsidiary called Predica to enter the life insurance market. Capitalizing on Crédit Agricole’s extensive branch network, Predica had become the second-largest life insurer in France by 1988.

As the French economy improved, the government began to ease regulations and remove limitations on capital markets. In 1986, a new conservative government came into power, and several Socialist officials were replaced almost immediately, including Jean Paul Huchon, Crédit Agricole’s general director. A plan to remove CNCA from state control had been brewing for some time; many other banks were in the process of becoming denationalized. Huchon had opposed this plan for Crédit Agricole vehemently enough to cause his dismissal. His successor was Bernard Auberger, a former director of Societé Générale with ties to the Gaullist Party, which had campaigned to rid CNCA of state control.

The new government also created easier bourse membership rules that allowed outside interests to buy into investment brokers. Following the trend of many banks after this deregulation, in 1988 Crédit Agricole purchased controlling stakes in two Paris stockbrokers, Bertrand Michel and Yves Soulié.

Finally, in 1987, the government began to take steps towards freeing CNCA from state control. On February 1, 1988, the state sold 90% of CNCA’s common stock to its regional banks and the company was incorporated with FFr4.5 billion in capital stock. Most of the rest of its stock went to employees, and the government holds a small stake.

Soon after the mutualization, the newly private Crédit Agricole began merging the Caisses Regionales to eliminate redundancies. By January, 1990 the number of district banks had been reduced from 94 to 90 and this number is expected to shrink substantially before the rationalization is over.

The transition to private ownership was not completely smooth, though. A boardroom struggle in 1988 led to the exit of Bernard Auberger. Philippe Jaffré, who was the finance ministry’s representative on CNCA’s board of directors, was Auberger’s surprise replacement.

In 1989 Crédit Agricole ceased to have a monopoly on the shrinking number of subsidized loans to farmers. In losing this monopoly, Crédit Agricole lost an important, captive customer group. The bank should be able to compensate for this loss, however, with the new business it expects to pick up as a result of the lifting of restrictions on its business. When Crédit Agricole lost its monopoly on subsidized farm loans, it was also freed of the unusual government restrictions on its business. Now Crédit Agricole operates in much the same way as any other French bank, and it expects its business to improve rather than suffer as a result of this status.

Under Jaffré, Crédit Agricole, like all European enterprises, faces the challenges that the 1992 unification of the European Economic Community will bring. The bank has already made a successful transition from a purely agricultural bank into a full-service bank. Privatization should give Crédit Agricole the freedom and flexibility it will need to face these challenges, but it will have to struggle with its slightly awkward structure—the 90 regional banks that control parent CNCA diffuse central decision-making power—and tackle operating costs that are much higher than its competitors’. If it can surmount those obstacles and capitalize on its tremendous domestic branch network, Crédit Agricole will be an even more formidable European competitor than it already is.

Principal Subsidiaries

Union d’Etudes et d’lnvestisse-ments; UniCrédit (98.7%); Sopagri (52.8%); Unimmo France (99.6%); Unidev; Sofipar (52.6%); Ucabail; Segespar; Segespar-Titres (50%); Predica (48%); Uni-banque; Sogequip; Cedicam (50%).