Crédit Agricole Group

views updated

Crédit Agricole Group

91-93 Boulevard Pasteur
Paris, 75015
France
Telephone: (33 1) 43 23 52 02
Fax: (33 1) 43 23 55 02
Web site: http://www.credit-agricole.fr

Cooperative
Incorporated: 1988
Employees: 134,300
Total Assets: EUR 913 billion ($1.09 trillion) (2004)
NAIC: 522110 Commercial Banking

With an estimated 21 billion customers, France's Crédit Agricole Group is an umbrella organization for a global network of banking and other financial institutions, including mainstay bank Crédit Agricole S.A. The group is the largest banking institution in France and, in terms of capital, the fifth largest in the world. Its unique corporate structure is described by the company as "unified yet decentralized" so that banks can operate autonomously within the legal and commercial boundaries set by the group.

THE ROOTS OF CRÉDIT AGRICOLE

In the mid-1800s, it became clear that there was a need for agricultural credit in France, especially after a crop failure in 1856 left rural areas in dire straits. One of the main causes of low production was a lack of sufficient credit for farmers, who often could not meet banks' normal credit requirements. In 1861, the government attempted to remedy this problem, asking Crédit Foncier to establish a department expressly for agriculture; the newly formed Société de Crédit Agricole accomplished little. By 1866, though some steps toward 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 credit. In 1885, the first society for agricultural credit was founded at Salins-les-Bains in the Jura; the maximum amount of credit a farmer could get was FRF 500, 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 credit was more suitable for the rural population than credit emanating from a big central bank.

In 1894, the Chamber of Deputies proposed a law to organize personal or short-term rural credit, based on the methods of the small credit 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.

A NEW STRUCTURE IN THE EARLY 20TH CENTURY

In 1910, a law established long-term personal credit 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 credit.

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, often struggled to raise the money to organize, and they needed Crédit Agricole's support. In turn, the cooperatives helped France's recovery after the war.

RAPID EXPANSION IN THE POSTWAR ERA

World War II hurt agriculture less than World War I 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 credit. In this sense, it won even more power to help further Crédit Agricole.

KEY DATES

1894:: France's Chamber of Deputies proposes a law to organize credit societies, or cooperative local banks, for farmers.
1899:: A French law creates regional banks to act as intermediaries between the local banks and the minister of agriculture.
1920:: Law establishes the Office National du Crédit Agricole, a central agency run by civil servants but controlled by the government.
1926:: Firm is renamed Caisse Nationale de Crédit Agricole.
1966:: French government allows Crédit Agricole to expand beyond services to farmers and to establish subsidiaries.
1979:: Crédit Agricole opens its first international branch, in Chicago, Illinois.
1988:: Crédit Agricole is incorporated, ending decades of government control.
1996:: Crédit Agricole acquires Banque Indosuez.
2001:: Crédit Agricole floats 30 percent of the stock of its primary bank, Caisse Nationale de Crédit Agricole, which is then renamed Crédit Agricole S.A.
2003:: Crédit Agricole acquires its domestic rival Crédit Lyonnais.

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 credit 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 FRF 1.6 billion to FRF 28 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. However, France's farm productivity was below that of most other European countries, and some blamed the low productivity partially on the credit 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.

EXPANDING BEYOND AGRICULTURE

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 Régional, 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 credit 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 FRF 400 million was more than the other three main French banks combined. The bank had begun to finance housing (later becoming 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.

GLOBAL EXPANSION

Crédit 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 (later renamed Ucabail) and Unicomi, which financed equipment and industrial and commercial building; Unicredit, which provided loans for businesses; and Union d'Etudes et d'Investissements, which became 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 credit limits for farmers and stock-breeders, 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 percent 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 were not nationalized already 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 percent. 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 Société Générale with ties to the Gaullist Party, which had campaigned to rid CNCA of state control.

The new government also created easier stock-exchange 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.

1988 INCORPORATION

Finally, in 1987, the government began to take steps toward freeing CNCA from state control. On February 1, 1988, the state sold 90 percent of CNCA's common stock to its regional banks and the company was incorporated with FRF 4.5 billion in capital stock. Most of the rest of its stock went to employees, and the government retained a small stake.

Soon after the mutualization, the newly private Crédit Agricole began merging the Caisses Régionales to eliminate redundancies. By January 1990 the number of district banks had been reduced from 94 to 90; within five years there were fewer than 70. As more and more regional banks closed, Crédit Agricole took steps to retain its rural customers. The bank reached agreements with some 10,000 local shopkeepers, for example, to provide basic banking transactions. Those living in France's countryside could then make deposits or cash checks at the bakery or the butcher shop, rather than traveling to the nearest bank branch.

The transition to private ownership was not completely smooth. 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. Jaffré presided over Crédit Agricole at a pivotal time in the bank's history. 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 loss of the monopoly, however, also meant that the bank was freed of the unusual government restrictions on its business, allowing it to operate in much the same way as any other French bank. In addition, the shrinking number of agricultural customers—just 15 percent of the total by the late 1980s—indicated a shifting direction for the "green bank."

At the end of the 1980s, Crédit Agricole had invested only about 15 percent of its assets in foreign markets, a small percentage compared to its biggest competitors. Over the next several years, that picture changed. Crédit Agricole expanded its overseas assets and the types of services it offered. Described in a 1994 American Banker article as "the sleeping giant of French banking," Crédit Agricole broadened its U.S. banking services to include trading and securities brokerage. Around the same time it also established a new banking entity in London that specialized in investment banking for large multinational companies. In 1996 Crédit Agricole bought Banque Indosuez, a move that enabled the bank to substantially broaden its investment-banking services to corporate clients, particularly in Asia. The subsidiary came to be known as Crédit Agricole Indosuez.

By the end of the 20th century, Crédit Agricole had expanded its presence significantly throughout Europe and into Latin America, the Middle East, Africa, and Asia, often by partnering with existing financial institutions in those nations rather than launching new institutions. Among its many holdings, Crédit Agricole secured shares of Banco Espirito Santo in Portugal, the Commercial Bank of Greece, and Europejski Fundusz Leasingowy and Lukas Bank in Poland.

AN IPO AND A KEY ACQUISITION IN THE NEW CENTURY

The summer of 2001 brought a radical announcement from Crédit Agricole regarding changes to the basic structure that had governed the bank since its 19th-century founding. Crédit Agricole announced that its central bank, the Caisse Nationale de Crédit Agricole (renamed Crédit Agricole S.A.), would be taken public, listing 30 percent of its shares on the Euronext stock exchange in Paris. This initial public offering was intended to raise $5 billion, and contrary to the bank's longstanding tradition, those funds would not be put back into Crédit Agricole. Executives of the institution indicated that the money would instead be used to acquire a new property. In a 2001 interview with Business Week, Crédit Agricole president Marc Bue announced the bank's intentions: "We want to be a leading French banking group with a European presence and global ambitions."

Following the stock flotation of Crédit Agricole S.A., the company was reorganized as a holding company called Crédit Agricole Group. During the summer of 2003, after a drawn-out approval process on the part of Crédit Agricole's regional banks, the institution purchased Crédit Lyonnais, one of its major competitors and one of France's most powerful banks, for EUR 19.5 billion. The newly purchased unit was renamed LCL, for Le Crédit Lyonnais, in 2005.

Integration of LCL with Crédit Agricole was far from smooth. To begin with, some analysts, and the bank's rivals, declared that Crédit Agricole paid too much for Crédit Lyonnais and failed to reap the savings expected from the acquisition. Antipathy toward the acquisition on the part of some of Crédit Agricole's regional banks resulted in missed opportunities to acquire Crédit Lyonnais for a lower price. Further, a clash of cultures between the two banks, which some attributed to tension between the rural roots of Crédit Agricole and the urban sophistication of Crédit Lyonnais, impeded the integration process.

While the merger continued to pose challenges, by late 2004 it had begun to yield positive financial results for Crédit Agricole Group, including vast savings through synergies between the two institutions. Crédit Agricole Indosuez, the investment-banking subsidiary renamed Calyon in the spring of 2004, performed particularly well, described by Business Wire in May 2004 as "one of the leading domestic players in this business." The acquisition of Crédit Lyonnais made Crédit Agricole one of the largest banks in the world, and positioned the institution to significantly expand its international presence.

During the summer of 2006, Crédit Agricole purchased a 72 percent stake in Emporiki Bank of Greece S.A., that nation's fourth largest lender, for about $4 billion. Later that year Crédit Agricole announced the purchase of 654 branches of Italy's Banca Intesa SpA, a $7.5 billion investment. Around the same time, the subsidiary Crédit Agricole Structured Asset Management (CASAM) acquired Ursa Capital, a New York-based holding company. In the 2006 edition of Fortune 's Global 500, Crédit Agricole ranked 19th on the list of the 500 largest corporations in the world. Having achieved dominance domestically and extended its reach internationally, Crédit Agricole seemed well positioned to continue expanding rapidly. In a 2006 article on Bloomberg.com, however, Crédit Agricole's chief executive officer, Georges Pauget, indicated that his institution would proceed cautiously with acquisitions, stating, "Our plate is pretty full for the time being."

Updated, Judy Galens

PRINCIPAL SUBSIDIARIES

Crédit Agricole S.A.; BGP Indosuez; Sofinco S.A.; Finaref S.A.; CFM Monaco; Predica S.A.; Calyon S.A.; Crédit Agricole Asset Management (CAAM); Pacifica S.A.