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EUrOWEEK
France in the capital Markets
March 2013
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Contents: FranCe in EUrOWEEK
the Capital Markets Managing director, EuroWeek group: John
Orchard • jorchard@euroweek.com
Managing editor: Toby Fildes
• tfildes@euroweek.com
Editor: Mark Baker
• mbaker@euroweek.com
Bank finance editor: Will Caiger-Smith
Corporate finance editor: Jon Hay
Covered bonds editor: Bill Thornhill
Emerging markets editor: Francesca Young
Loans and leveraged finance editor:
Nina Flitman
MTNs and CP editor: Tessa Wilkie
SSA Markets editor: Ralph Sinclair
IFIS editor: Dan Alderson
Contributing editors: Lucy Fitzgeorge-
Parker, Nick Jacob, Philip Moore, Jo Richards
Reporters: Nathan Collins, Andrew Griffin,
Steven Gilmore, Sai Harrod, Hassan Jivraj,
Page 10 Hugh Leask, Stefanie Linhardt, Joseph
Models on the catwalk during the Haute Couture Spring-Summer McDevitt, Craig McGlashan, Tom Porter, Ravi
2013 collection shows on January 24, 2013 in Paris Shukla, Michael Turner, Oliver West
Production manager: Gerald Hayes
Deputy production editor: Dariush Hessami
Production: Anthony Parselle
02 MAcroeconoMic overview Night editor: Julian Marshall
Sub-editors: Charlie Gidney, Tom Pumphrey
Hollande provides unlikely Cartoonist: Olly Copplestone
impetus to crucial French reforms 35 insurAnce cApitAl • smokingbiplane@hotmail.com
An embarrassment of solvency
08 FrAnce’s role in europe riches for French insurers Events & Project Manager: Sara Posnasky
+44 20 7779 7301
Demoted France attempts to
regain the European initiative 37 the Asset MAnAgeMent Advertising
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A taste for adventure pays
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42 French corporAte Katherine Clack +44 20 7779 8612
borrowers roundtAble James Feeney +44 20 7779 8414
Mark Goodes +44 20 7779 8605
France SA reveals post-crisis Mark Lilley +44 20 7779 8820
zeal to expand bond funding Jeremy Masters +44 20 7779 8036
10 pAris As A FinAnciAl centre George Williams +44 20 7779 8274
Paris proves financial life 51 equity cApitAl MArkets Marketing
Clare Cottrell +44 20 7827 6458
exists outside of London Confidence key for Claudia Marquez Reyes +44 20 7827 6428
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13 christiAn noyer interview Americas
Governor Christian Noyer heralds 55 leverAged FinAnce Chas Reese • creese@euromoneyny.com
Tel: +1 212 224 3002
new era for eurozone and for France Who’s afraid of François Hollande?
Levfin aims to thrive Euromoney Institutional Investor plc
17 oAt MArket proFile Nestor House, Playhouse Yard, London EC4V
AFT emerges from crisis 57 MidcAp And sMes 5EX, UK
Tel: +44 20 7779 8888 • Fax: +44 20 7779
in stronger condition Breakthrough for mid-caps as new 7329
PP market takes root in France
20 AFt roundtAble Directors: PR Ensor (executive chairman),
AFT helps France plot safe 59 inFrAstructure The Viscount Rothermere (joint president),
Sir Patrick Sergeant (joint president), CHC
course through euro crisis Attention au fossé — the search Fordham (managing director), D Alfano, JC
for infrastructure finance steps up Botts, DC Cohen, J Gonzalez, CR Jones,
29 public sector borrowers M Morgan, NF Osborn, J Wilkinson
Agencies set to shine 62 equity derivAtives
Printed by Williams Press
French banks spearhead drive All rights reserved. No part of this publication
31 bAnking sector to raise liquidity in VStoxx may be reproduced without the prior consent
French banks catch of the publisher. While every care is taken
up in capital stakes 65 French reAl estAte in the preparation of this newspaper, no
responsibility can be accepted for any errors,
Insurers muscle in on however caused.
33 bAnk Funding French CRE funding © Euromoney Institutional Investor PLC,
Lenders sans frontières — banks 2013 ISSN 0952 7036
recover their swagger 67 dAtA
France in the Capital Markets | March 2013 | EUROWEEK 1
MAcroEconoMic ovErviEw
Hollande provides unlikely
impetus to crucial French reforms
France’s fate is inextricably linked to that of Europe as a whole. With the eurozone enjoying a period
of stability and new president, François Hollande, pressing ahead with reforms, the outlook for the
French economy looks markedly better than it did 12 months ago. Solomon Teague reports.
While nobody is prepared to call
the end of the european debt crisis
just yet, there is no doubt the conti-
nent experienced a turning point in
September 2012.
When eCb president Mario draghi
assured markets he would do what-
ever it took to save the euro and
eurozone sovereign debt, includ-
ing potentially unlimited purchases
of bonds, his words had a profound
impact on the continent as a whole,
and the outlooks for all the euro-
zone states individually too.
“The european debt crisis has
changed dimensions now,” says
Michala Marcussen, global head of A hunger for change: Socialist PM François Hollande might well deliver
economics at Société Générale. The the structural reforms that evaded his right wing predecessors
issue of where sovereigns — and the
banks to which they have become so reform, as italy may do at the end The national Pact for Growth,
interdependent — would get emer- of February. however, such is the Competitiveness and employment,
gency funding if needed, was essen- integration of european states, and unveiled on november 5 last year by
tially resolved in the summer of their problems, that such events prime minister Jean-Marc Ayrault,
2012, when the eCb pledged to buy in italy could themselves trigger a is a step in the right direction. A
unlimited one to three year paper, fresh round of panic that could spill measure designed to increase com-
she says. While funding is now across borders into France and else- petitiveness in France, its headline
solved, solvency requires growth, where. clause is a tax credit spread over
adds Marcussen. three years, thereby cutting produc-
The eCb’s move stabilised mar- Vote left, get right tion costs.
kets but its promises are contingent There is some irony in the fact that The pact was announced just one
on beneficiary countries sticking to it looks as though it will be a social- day after louis Gallois, the former
the conditions laid out in the euro- ist who finally delivers the structural chief executive of aerospace group
pean Stability Mechanism, name- reform that his right wing predeces- eAdS and corporate troubleshooter,
ly austerity and structural reform. sors have for so long failed to deliv- published his government-commis-
More than ever before, stability in er. France needs to cut red tape and sioned report on competitiveness,
France, and elsewhere in europe, simplify regulations, which make it in which he wrote of an “emergency
is dependent on the country being very expensive to form companies, situation” and called for a “competi-
seen to deliver on austerity and and introduce considerably more tiveness shock”. The report’s 22 pro-
structural reform. flexibility into the labour market. posals included cutting the social
in one sense the resolution has in France there is insufficient dia- contributions paid by employers
only changed the complexion of logue between the unions and the by €20bn as well as those paid by
the problem, not solved it entirely. owners, says Jean-Paul betbeze, employees by €10bn.
France’s challenge now is principally chief economist at Crédit Agricole on the same day the internation-
political as it weighs up the need for in Paris. All attempts at reform — of al Monetary Fund weighed in with
sweeping structural reform against pensions, the labour market or any- its own report, urging France to act
the difficulty the socialist president thing else — are therefore far hard- or risk falling further behind its
will have in selling such measures to er than necessary. This is in sharp european peers, employing meas-
his electorate. contrast to Germany, at least partly ures such as loosening employment
France can at least be grateful it accounting for the relatively greater laws to make it easier to both hire
has its election behind it, and will appeal of bunds versus French gov- and fire workers, as well as cut pay-
not now elect a leader that rejects ernment bonds. roll taxes to encourage employers to
2 EUROWEEK | March 2013 | France in the Capital Markets
MAcroEconoMic ovErviEw
are more moderate. from the right wing did not have
“The level of inequal- the stomach for it, the logic goes,
ity is stable in France, what hope is there for a socialist
unlike in the US where to stay the course? on labour mar-
it is growing rapidly,” ket reform, too, there is recognition
says betbeze. “The that he has made some progress, but
resentment caused economists argue more is needed to
by massive banker put France on a similar footing to
bonuses is an Ameri- Germany.
can story, not a French yet many are surprisingly opti-
one.” mistic France will eventually get
With the approval of there, even if it is more likely to do
the mid-year correc- so via a series of small, seeming-
tive budget last year ly insufficient steps, with its slight
aimed at meeting the progress on labour market reform
4.5% deficit target in providing the model.
2012, and a 2013 budg- in fact, says Michel Martinez,
Louis Gallois: shocking
et that is designed to chief France economist at SG, this
achieve the 3.0% deficit will be the first time in 30-40 years
hire more staff. target this year, the government has that the two sides have reached
however, arguably more signifi- shown the seriousness of its com- any agreement at all, and as such
cant is the agreement on labour mitment to fiscal discipline, says it could set a useful precedent on
market reform reached in January, olivier bizimana, an economist at which further advances can be built.
giving employers greater freedom Morgan Stanley. “This does not get us to where Ger-
to cut salaries and wages, in return “The government seems to be many or denmark are overnight,
for greater protection of jobs. “The moving faster on reform implemen- but it is a step and the first step is
recent agreement signed in Paris tation than we, and most observ- always the hardest,” he says. “it is a
between the unions and the owners ers, were expecting,” he adds. small step economically but a huge
is a very big change in this respect,” While these steps are quite small in step politically.”
says betbeze. “let us hope it will the context of the overall changes if France’s challenge is now
open a new social relationship in required, he has still won admira- more political than economic, per-
the country.” tion for sidelining the more extreme haps investors in French debt are
however, in exchange unions are elements of his party. right to be sanguine. economi-
calling for increased costs for the cally it has time on its side, and
use of temporary workers, which Resisting change while sooner is always better than
looks like a step in the wrong direc- The big question now is how the later, to some extent it makes lit-
tion. And it will be hard for a social- French electorate will respond to tle difference whether the reforms
ist president to resist such union contentious reforms, particularly come this year or next, as long as
demands. of pensions and the labour market. it increases its long term growth
but François hollande appears to Some will doubt hollande’s appetite potential.
understand the nature of the coun- or ability to push through sufficient- “yes, growth is likely to disap-
try’s problems. After a nervy start ly far-reaching reforms, particularly point, but this shouldn’t be a big
to his presidency, the markets have on pensions, lifting the retirement problem,” says Marcussen. “Several
settled, clearly believing he has age as others in europe have begun aspects separate France from some
shelved his socialist rhetoric and to do, and securing a sufficient of the peripherals that have found
will chart a pragmatic course for- increase in contributions to ensure themselves in trouble. it does not
ward. And while some see his ill-fat- plans are fully funded. if presidents have to worry about unruly regions
ed 75% top rate of tax, or his or its ability to pass budgets,
reduction of the retirement Unemployment rate it has no problem collecting
age policies as indicative of Unemployment rates taxes, unlike somewhere like
his left wing leanings, others % % Greece where tax evasion is a
13 30
see clever manoeuvres to win 12 US Euro area France Germany Spain (RHS) really major problem. Moreo-
the political capital needed 11 25 ver, France did not suffer a
to push through his other 10 housing bust.”
reforms. 9
20 With a small manufactur-
his aggressive tax policies 8 ing sector, France has seen
15
play well with his support 7 a greater level of econom-
base, politically, and will 6
10 ic stability, says dominique
have less of a detrimental 5
barbet, bnP Paribas econo-
impact in France than they 4 5 mist for France, with services
3
would in the US or UK. There tending to be more resilient
2 0
are fewer ultra-rich individ- 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 during periods of recession.
uals in France, and wages Source: Société Générale France also benefits from its
4 EUROWEEK | March 2013 | France in the Capital Markets
MAcroEconoMic ovErviEw
large public sector, which tends to investors and market observers
be slower to cut jobs than the pri- maintain a negative view on France,
vate sector, meaning unemploy- believing its deteriorating econom- “The government
ment has been slower to rise. And ic fundamentals eclipse those of cannot afford
unlike italy and Spain, where wages its neighbours. The key economic to delay
are decreasing, in France wages are measures — structural unemploy- structural
stable — at least before tax. ment, external balance, perfor- economic
like italy, France sees moderate mance of the industrial sector, tax reforms”
net negative international invest- burden, public debt — have reached
ment flows of -20%, but when you a critical point of deterioration, says Olivier Bizimana,
compare that to Spain’s -90%, bizimana, in large part as a result Morgan Stanley
France’s moderate reliance on inter- of the financial crisis. “The govern-
national investors does not look ment cannot afford to delay struc-
much of a problem. tural economic reforms,” he adds. proved to be the case.
Factors well beyond France’s con- no doubt, French banks must
trol also seem to be easing. China’s Under siege learn to adapt to a new macroeco-
slowdown appears to be moderate, The feeling is widespread enough nomic reality. Traditionally very
while indicators in the US suggest it that both French sovereign debt, large banks, they have been profita-
could bounce back this year. and the country’s banks, have been ble despite low margins, with Crédit
While GdP growth is clearly dis- targeted by short sellers throughout Agricole generating around €5bn
appointing, hovering around the the crisis. Traders were betting there of pre-provision income on €2tr of
zero mark, unemployment looks would be no money left after saving assets over the last 12 months.
resilient and shows no sign of spik- italy and Spain, and that contagion by contrast, bbVA, the Spanish
ing as it has in the periphery. would ensure the crisis spread north bank, generated €4.5bn (7%) of net
despite these positives, many into France. So far, this has not revenues and €2.4bn (3.8%) of oper-
Goldilocks debt
not too expensive and not too risky, but just right: why investors have ing months, but we can be confident
been flocking to French sovereign bonds. France will not drop below double-A
in the foreseeable future,” says Domi-
FrAncE iS still considered a stable, certainty has reinforced investors’ de- nique Barbet, BnP Paribas economist
core European state, as evidenced sire for high quality credits with good for France.
by its success in recent bond issues. liquidity, but also the desire for yield, in some ways French debt has
French sovereign debt have been sta- says Philippe Mills, until recently cEO emerged as the most desirable paper
ble at around 60bp-65bp over Germa- at Agence France Trésor in Paris. This to hold. With German Bunds offering
ny, demonstrating investors still have particularly benefits the core issuers precious little return, investors seek-
confidence, for whatever reason, in at the expense of peripherals. ing safe assets but higher returns have
France’s ability to navigate the finan- The impact on France has been turned to French bonds, judging the
cial storm. French cDS spreads have particularly beneficial, says Mills, re- additional yield to be greater than the
tightened by around 150bp since the flecting investor confidence in the additional risk.
summer of 2012. government commitment to deficit French debt has also displayed con-
Several factors explain the histori- reduction. in addition, “the low rates siderably less volatility than either pe-
cally low French interest rates and re- environment set by EcB has pushed ripheral debt or Bunds, says Barbet. “in
sulting lower spreads against German short term government securities a world of uncertainty, it is attractive
interest rates versus peripheral credits rates close to zero or even in nega- to have part of your portfolio in some-
in recent months. tive territory, leading investors to ex- thing that is pretty stable,” he says.
The general mood of economic un- tend the duration of their investments Despite a lot of speculation about
to longer maturities in a search for France being dragged into full blown
“In a world of yield,” explains Mills. Historically crisis, in fact it has always looked a
uncertainty, It is low rates, and thus spreads, are not very strong credit, says Michel Mar-
attractive to have confined to France, but are also evi- tinez, chief France economist at SG.
part of your dent in the other strongest eurozone “The usual triggers for crisis were just
portfolio in states, including Germany, Austria, not present in France.” in particular the
something that is Finland and Benelux. French banking sector looks sound,
pretty stable” With the available stock of dou- while unemployment, though high,
ble and triple-A assets dwindling has not spiked to dangerous levels.
Dominique all the time, France remains part of in terms of sovereign debt, “France
Barbet, BnP an exclusive club, ensuring its debt is less expensive than Germany and
Paribas remains in demand. “We may well less risky than the peripherals,” says
see further downgrades in the com- Martinez. s
6 EUROWEEK | March 2013 | France in the Capital Markets
MacroeconoMic overview
ating income from €63.4bn of assets the cost of loans in Spain and italy
in South America (ex-Mexico), and have soared. This has made life con-
€6.4bn (2.1%) of net revenues and siderably easier for SMes in France “The agreement
€3.6bn (1.2%) of operating profits than their peers across either of its between the
on €310bn of assets in Spain and borders to the south. unions and the
Portugal. Credit supply has held up well, owners is a very
As French banks’ balance sheets while demand is also firm, though big change”
shrink, with borrowers remaining naturally it has declined as borrow-
more cautious than before the crisis, ers wait for growth to pick up before Jean-Paul
more profit will need to be generat- further indebting themselves, says Betbèze, crédit
ed from smaller revenues. Marcussen. “We are not seeing a Agricole
At 5%, non-performing loans are credit crunch in France, we are see-
low in France, relative to the more ing reduced demand, but nothing
troubled economies of europe, like like what we see in the periphery,” ed across europe.
Spain (11%) and italy (17%), although he says. With a dearth of other attractive
they are higher than Germany. For looking assets in the market, and
the large banks they are lower still, Good access some banks buying back their debt
though the figures will rise across Access to capital is very good, even in the market, further limiting sup-
the board if unemployment rises. by long term historic standards, for ply, there are plenty of yield-hun-
Finally, bond markets are a third the larger corporates. As elsewhere gry investors happy to lend to the
of corporate credit, versus only in europe, they have started to rely French government and banks.
5%-10% in the periphery. less on the bank market, and drift “investors who are short France
French banks are coping well with to the debt capital markets, where are right on one level, but this is a
the extra burdens brought about by demand is outstripping supply. story that will take three years to
basel iii regulations. on the capital Many are also diversifying into play out,” says Alberto Gallo, head
side, French banks are well capi- the US dollar market, giving them of european macro credit research
talised, with around three or four another, potentially cheaper option. at RbS. “We have taken the oppo-
times more capital than they had Some are even looking further afield site view and have been long French
pre-crisis, well above required lev- at renminbi issues, while maturities banks since last year. if you look at
els. The liquidity requirements were are being lengthened. in all, French the specifics, France looks very dif-
more problematic, but have been bond issuance levels in 2012 were ferent from the periphery.”
modified and now look more feasi- close to 2009 levels, making it one While French banks are very large
ble, says betbeze. of the busiest years in French corpo- at over 400%, of GdP, they have
France also escaped a housing rate dCM history. been swift to act in the deleveraging
market crash, unlike some of its French corporate bonds have seen process and committed to their strat-
european neighbours, which stands a spike in liquidity as both equity egies to navigate the crisis. Crédit
its economy — and its banks — in and sovereign bond investors have Agricole, for example, has been scal-
good stead. France remains a coun- come into the market. The private ing back its activities in Greece, sell-
try with a shortage of housing, and placement market has also swol- ing emporiki, its Greek subsidiary, to
steady, natural population growth, len in response to investor demand Alpha bank last year for €1.
ensuring demand remains healthy. for assets, with €3.5bn raised in the Crédit Agricole had already pro-
houses tend not to be viewed as euro market via PPs in 2012. it is the vided funding to the subsidiary,
wealth assets in France, but places smaller SMes that are struggling to to the tune of €2.1bn by the end of
to live. find capital, a picture that is repeat- September 2012, demonstrating its
having experienced heavy eagerness to retreat following
losses following a housing France: Some modest rebound this year its six-year foray into Greece.
bubble in the 1980s, France A modest rebound in French growth but “the recapitalisation of
did not see big home equity emporiki and subscription
lending, as in the US, and q/q % y/y % for the convertible bonds to
1.6 5
mortgage lending was quite Forecasts
4
be issued by Alpha bank [as
1.2
conservative, even before the 3
part of the terms of the deal]
0.8
crisis. With a prevalence of 2 will immediately reduce this
fixed rate mortgages, French 0.4 1 funding by approximately
households have not come 0.0 0 €0.7bn,” Crédit Agricole said
under the same kind of pres- -0.4 -1 in a statement announcing
sure that threatens banks -0.8 -2 the sale.
with a spike in nPls. -3 And while it took a big loss
-1.2
Credit conditions in France -4 on the sale, its share price
-1.6
have held up well compared -5 jumped 5% on the announce-
with some of its neighbours. -2.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13
-6 ment, illustrating investor
loan costs in France are still relief it would be able to focus
affordable and comparable QoQ YoY (rhs) on core businesses from now
to those in Germany, even as Source: Insee, Crédit Agricole on. s
Source: Insee, Crédit Agricole
France in the Capital Markets | March 2013 | EUROWEEK 7
FRance’s Role in euRope
Demoted France attempts to
regain the European initiative
France was until recently seen as co-CEO of Europe. But the crisis has elevated the status of its one-
time partner, Germany, eroding France’s influence. Yet this has provided the pretext for the French
government to push through reforms previous administrations have struggled to deliver, as it
strives to regain its former leadership role. Solomon Teague reports.
Since the outbreak of the financial At the same time France is look-
crisis, France has seen its influence ing to improve convergence among
in europe diminish, with the for- the eurozone member states, and to
mer “Paris-Berlin Axis” increasing- enhance the political legitimacy of
ly dominated by Berlin, with one eurozone institutions.
country struggling with structur- “Our main goal is eurozone
al imbalances while the other gets consolidation, and that is the
ever more powerful. way europe is heading,” says
“France needs to tackle its struc- Dominique Barbet, BnP Paribas
tural problems to regain credibility economist for France.
with Germany and be in a position The feeling in France is that
to negotiate and have influence at those countries pushing for further
the eurozone level,” says Olivier eurozone integration should be
Bizimana, an economist at Morgan free to get on with it, without being
Stanley with a focus on France. held back by the sceptics.
Until France can resolve its inter- europe is evolving in other ways
nal struggles with structural reform that makes it feel more French. One
it will not command its former of is the role of its central bank, which
influence over others wrestling has come to resemble the Banque
with the same problems. Germa- de France far more than the Bun-
ny, by contrast, is able to point to desbank, says Paul Donovan, global
its own experiences implementing economist at UBS. “The ecB is more
structural reforms when calling on willing to accept its role as a politi-
others to do the same. cal player in a broader economic
in style and temperament, Fran- realm, beyond the strict criteria of a
çois Hollande is very different from monetary policy,” he explains. “The
former president, nicolas Sarkozy. Reflecting on its position: Bundesbank was far more purist in
Many in France had the impression France wants its European CEO job back approach, in a monetarist sense.”
their former president took orders
from Germany’s Angela Merkel, and One big difference between Hol- Elusive growth
there was also considerable resent- lande and his predecessor has been his europe needs growth. But with the
ment at his ostentatious wealth when insistence on a rebalancing away from periphery locked in recession and
the country was in deep recession and austerity, towards measures to promote economies as large as Spain also strug-
unemployment was rising. All that has growth. When Hollande was elected gling to pay the bills, that growth looks
changed under Hollande. and first made such comments, it was a as elusive as ever. The rating agencies’
Politically the two men are very dif- big departure from what europe’s other patience looks to be wearing thin, with
ferent. Yet their attitudes to europe, politicians were saying. But it has come France itself downgraded in november
and to France’s role within it, are strik- to be accepted as mainstream wisdom, precisely because of its lack of growth
ingly similar, reflecting broad con- says Gilles Moec, co-head of european — and growth prospects.
sensus within France on these ques- economic research at Deutsche Bank. europeans look set to conclude that
tions. The recent Fiscal compact was it might be a stretch to say it was pres- they need to slow down the pace of
approved by over 85% of parliament. sure from France that changed the austerity to give growth a chance,
Two-thirds of French voters back pro- thinking in Germany and elsewhere but there is a delicate balancing act
european parties at the last general in europe, with the iMF also pushing required: if they move too far from aus-
election, and by extension parties that such arguments, but France certainly terity they will jeopardise their access
advocated a rebalancing of the public started the conversation, he adds. to funding; too zealous in pursuit of
finances and structural reforms. France crucially, there are issues of national austerity and they risk choking off
is more relaxed about europe than self-interest to France that explain pol- growth, prolonging recession.
many of its fellow members — includ- icy continuity, relating to agriculture europe may use this crisis as the
ing Germany, where the cost to the and the budget in particular. it also has opportunity to rebuild a stronger bank-
German taxpayer has made the issue a strong desire not to split up its lead- ing system, with a full banking union
increasingly contentious. ing banks. and fully harmonised regulation. Yet
8 EUROWEEK | March 2013 | France in the Capital Markets
France’s role in europe
some worry the moment may have european nation.”
passed. european politicians have While this is clearly a significant cost
shown they will kick the can down the at a time when the public will have France’s pursuit of
road given the opportunity, and have to endure difficult adjustments, the structural reform
only acted decisively when there was a French are keenly aware of the benefits is more urgent
real risk of economic collapse. they get from european membership, from a poltical
now that danger looks to have been for example the support afforded to its perspective than
averted, they fear the politicians will farmers via the common Agricultural an economic one
revert to their old habits and avoid seri- Policy. And it is also clearly understood
ous discussion. that the costs associated with euro- Michel Martinez,
Despite the criticism levelled at pean failure are far higher than those Société Générale
europe’s politicians for their lack of of propping up struggling peripheral
decisiveness, a lot has been achieved countries.
since 2009: the first tentative steps Tax policy is an important item for
towards banking union, the possi- Integration nation the agenda, says Betbeze. in the US,
ble harmonisation of fiscal rules and While the French were initially scepti- while states set their own tax rates,
peer reviews have been debated, a cal about banking union, the concept there are limits to their freedom to
€700bn rescue fund has been set up has been accepted and even welcomed ensure competition between states
and unlimited market intervention as a step towards greater european does not get too fierce. europe needs
promised. federalism, says Barbet. similar safeguards, he adds, to ensure
“if all that had been envisaged back France will end up with a large pro- the playing field remains even.
at the start of the crisis it would not portion of its banks overseen by the A world order where production is
have seemed possible, so that is a cred- centralised authorities. A higher pro- confined to Asia and europe is merely
it to the politicians, but at the same portion than Germany, for example, a market that is not sustainable, says
time it took too long to get there,” says which has fought to keep its Landes- Betbeze, and France, along with oth-
Michala Marcussen, global head of banks and other smaller banks under ers in europe, will ultimately repat-
economics at Société Générale. There national control, despite the experi- riate some manufacturing that has
is no room for complacency now, and ences of Spain clearly demonstrating been outsourced. “With around 40%
yet there is every possibility of politi- that the seeds of crisis can originate of young people unemployed in italy
cians becoming complacent, especial- at smaller banks. consequently, Ger- and Spain, we are close to the point at
ly with italian and German elections many will only cede control of around which you will see social breakdown,”
looming. half of its banks to europe, against an he says. “We need a new industrial
Since european central Bank presi- estimated 90%-95% in France. Hol- and social fabric.”
dent Mario Draghi promised to stand lande agrees with this arrangement, While France cannot afford to be
behind troubled eurozone economies says Betbeze, though it is envisaged complacent in its pursuit of structural
with unlimited bond purchases in Sep- that later steps will see the smaller reform, the matter is probably more
tember, there has been a shift in mood european banks eventually come into urgent from a political perspective
within europe, says Jean-Paul Betbeze, the banking union as well, he adds. than an economic one, says Michel
chief economist at crédit Agricole in France will push for europe to con- Martinez, economist at SG. it is impor-
Paris. There is a renewed sense of opti- tinue towards greater political integra- tant for europe to see France lead by
mism that the continent will come tion as the solution to the crisis. “Our example, and for France to demon-
through the crisis stronger. will to resolve the crisis is stronger strate its ability to reform itself.
There is an understanding in France than the problems we face,” says Bet- France’s efforts to recapture its for-
that saving the european project will beze. “We need a stronger and more mer leadership role in europe are
continue to prove expensive. Accord- unified europe, one that is simpler, probably responsible for its progress
ing to the european commission’s own with more democratic accountability.” in pushing through the reforms that
estimates France puts more Sarkozy and others have found
money into the eU budget so difficult to deliver in France.
than it gets out. it 2011 it made Net contribution to EU budget, including own While the market continues
a net contribution of €6.455bn, resources collected to believe Hollande’s com-
compared to €7.255bn for the Country Total Total €m Pop. NET mitment to delivering such
UK and €10.994bn for Germa- Expend. Rev cont/cap reforms, it seems sanguine
€m €m €
ny. Yet this is not a big political about the French economy and
Denmark 1,473.1 2,488.3 975.2 5,580,516 174.7
issue in France, says Barbet. Germany 12,133.0 23,127.1 10,994.1 81,843,743 134.3
debt levels. Any suggestion
But there is a sense of perspec- France 13,162.3 19,617.2 6,454.9 65,397,912 98.7 of a diminished appetite for
tive about this cost that pre- Italy 9,585.9 16,078.0 6,492.1 60,820,764 106.7 such reform may cause a quick
vents it becoming a defining Cyprus 183.6 184.8 1.2 862,011 1.39 rethink in the markets. For now
political debate: “The cost of Netherlands 2,064.3 5,868.9 3,804.6 16,730,348 227.4 Hollande seems to understand
europe is not a big political Austria 1,875.8 2,688.7 812.9 8,443,018 96.3 this, and to be keen to reassure
issue in France,” he says. Finland 1,293.0 1,955.2 662.2 5,401,267 122.6 the markets that he will deliver
“The cost of the rescue Sweden 1,757 3,333.6 1,576.6 9,482,855 115.2 the reforms Sarkozy promised
programmes now in place is UK 6,570.0 13,825.2 7,255.2 62,989,550 115.2 to deliver when he was elected
around 1% of GDP for each Source: European Commission in 2007. s
France in the Capital Markets | March 2013 | EUROWEEK 9
Paris as a Financial centre
Paris proves financial life
exists outside of London
Although London is clearly Europe’s number one financial centre, Paris has a fine pedigree of its
own and can boast the world’s third largest bond market, behind the US and Japan and ahead of
Germany and the UK in terms of primary issuance by French issuers. Philip Moore reports.
France must be doing something
right to attract foreign investment,
although it would probably be well
advised to let the data, rather than
some of its politicians, do the talking.
those numbers show that in the sec-
ond quarter of 2012, France attract-
ed FDI flows of €18.6bn — more than
any country bar the us and china. By
the end of October 2012, FDI inflows
had reached €42.5bn, compared with
€29.5bn in the whole of 2011.
Granted, those figures refer to a
period before President Hollande
announced his proposal to tax high
earners at 75%. they also track inflows
before his administration’s attack on
arcelormittal, the French operations
of which were threatened with nation-
alisation in response to its plans to Far from dwelling on former glories, Paris has ambitious
shut the Florange steelworks. plans for its standing as a global financial centre
the government insists, however,
that the rise in FDI in 2012 is just the to at least 300 new companies setting Gamble and so on. as the lugubrious
beginning. the ministry of econo- up shop in France by 2017, although it atmosphere [of the early 1970s] waned,
my has released details of its national is unlikely that a large share of these the Paris venture surpassed all rivals.
Pact for Growth, competitiveness, and new investments (if any) will be in By 1975, it would issue $5bn in yearly
employment, which aims to cut labour financial services. Investment banks, offerings.”
costs by €20bn and to slash payroll insurance companies and hedge funds eugene Burghardt, head of sales and
taxes by 6% for workers earning below are not obvious candidates for prefer- trading at morgan stanley in Paris,
2.5 times the minimum wage. ential tax treatment or support from says that it has maintained a consist-
France’s drive to boost employment the new state investment bank. ent commitment to its French opera-
and competitiveness includes the But it’s not as though Paris has no tion ever since, and that Paris itself
provision of research tax credits, the pedigree as a financial centre. It has an remains a leading financial centre.
simplification of administrative for- impressive one. In the 1970s it was far “I would argue that as a bond, equity
malities for businesses and the estab- from clear that London would become and derivative centre and an exporter
lishment of a state investment bank the centre of gravity for fast-expand- of financial expertise, Paris is maybe
(BPI) jointly owned by the government ing eurobond market. morgan stanley, even a more important financial cen-
and caisse des Depots with funding for example, built on the longstand- tre than it was in the 1970s,” he says.
resources of €42bn. ing presence that the House of morgan
the plan includes a pledge to launch had had in France since 1916 when it Second chance
a new stock exchange that will “make chose Paris as the nerve centre for its Perhaps. But the far-reaching nation-
it easier for state and mid-sized com- eurobond operations in the late 1960s. alisation programme under Presi-
panies to access the capital markets”. It was not until 1976 that it set up dent mitterand in the early 1980s,
that France means business seems morgan stanley International in Lon- which brought more than 30 banks
to have been underscored in January, don. By then, according to ron cher- and about 90% of the system’s depos-
when, after three months of negotia- now’s exhaustive history of the mor- its into state ownership, hardly helped
tions, the government agreed a new gan dynasty, morgan stanley had to strengthen France’s credentials as
labour law with the unions, giving made a “spectacular success of Paris, a financial centre. Paris was, however,
employers more leeway for cutting sal- financing standard Oil of new Jer- given a second chance with the emer-
aries and axing unproductive staff. sey, us steel, eastman Kodak, texaco, gence in 1981 of the ecu bond market,
the government hopes this will lead american tobacco, amoco, Procter & around which a very substantial infra-
10 EUROWEEK | March 2013 | France in the Capital MarketsParis as a Financial centre
structure was built in Paris. By the intermediaries across europe need to
early 1990s, the ecu market was one “As a bond, equity work with the common objective of
of the largest and most liquid inter- and derivative supporting economic recovery. We rec-
national bond markets in the world, centre and an ognise the need to develop initiatives
while on the matif, futures contracts exporter of financial such as euronext, pooling the resourc-
on French government bonds were expertise, Paris is es of centres such as amsterdam and
among the most traded derivatives a more important Brussels with those of Paris.”
products in europe. financial centre than Bankers say that Paris has plenty of
as late as the mid-1990s, France’s it was in the 1970s” strengths to fortify its credentials as a
futures exchange was accounting for leader in eurozone financial services.
about 30% of all european futures Eugene Burghardt, martine Boutinet, regional head of sales
trading. While this may not have Morgan Stanley for France, Belgium and Luxembourg
made Paris a serious competitor to at crédit agricole cIB in Paris, points to
London, it certainly helped it to steal a volumes traded in Paris rose from the asset management industry as one
march on Frankfurt. $127bn in 2007 to $152bn in 2010, this clear area where Paris enjoys a com-
While the collapse of the ecu market still left the French city as the eighth petitive edge (see separate chapter on
dealt a blow to Paris’s ambitions as a largest FX centre in the world, with France’s asset management industry).
financial centre, today it is “the lead- a global share of just 3%. London, by according to the association Fran-
ing bond market in europe,” according comparison, accounted for 37% and çaise de la Gestion Financieres (aFG),
to Paris europlace, which aims to “pro- the us for 18%. switzerland, mean- at the end of 2011, assets under man-
mote and develop the Paris financial while, was ahead of France, with 5%. agement in France were €2.65tr. that,
market”. Quoting the latest BIs data, Financial services continue to make says the aGF, makes Paris the largest
Paris europlace says that totals out- a big contribution to France’s econ- fund management centre in europe
standing in the French bond market omy. De Bresson says that the sector and the second largest in the world
are $5.8tr, compared with $5.5tr in Ger- accounts for about 5% of national GDP, (after the us); in terms of fund domi-
many and $5tr in the uK. that, says while in the Greater Paris region, it ciliation, says the aGF, Paris is the sec-
the Paris europlace, makes it the third accounts for closer to 15% of GDP and ond largest centre in europe and the
largest market in the world, behind the 6% of total employment. He insists, third largest worldwide.
us (with $33tr) and Japan ($14.5tr). however, that the role played by finan- Over the last 10 years, the number
arnaud de Bresson, managing direc- cial services in Paris is essential for the of asset management companies in
tor of Paris europlace, says that these health of the broader French and, by France almost doubled, from 350 to
numbers refer to the primary issu- extension, european economy. over 600, with four of these ranking
ance of French issuers, reflecting the among the 20 largest in the world.
size of sectors such as the French gov- Co-operating with London It’s easy to see why France is an
ernment debt market and its corpo- this, he says, is why Paris europlace attractive location for asset managers.
rate bond market. France, he says, is emphasises co-operation rather than “the way the savings market is organ-
the leader in europe with 33% of all competition with financial centres ised in France, with a number of tax
international issuance in the europe- such as London. “Our core philosophy incentives offered to retail investors
an corporate bond market. De Bresson is that the most important function through life insurance contracts and
concedes that London accounts for a of the financial centre is to serve the the mutual fund market, has been very
larger share of bond trading, although economy,” he says. “We recognise that important in supporting the growth
he says that the cassiopeia commit- more so than ever, we need to explain of the asset management business in
tee is exploring ways of enhancing sec- to the government and to the general France,” says Boutinet.
ondary market activity in Paris. public the importance of financial ser- One area of the French asset man-
For the time being, however, London vices to support economic recovery. agement industry that has created
continues to dominate euro bond mar- We view financial services as an eco- a modest but important niche is the
ket origination, syndication, trading system in which issuers, investors and hedge fund sector. significantly, a
and research. the cityuK esti- number of large new funds
Investment funds in Europe €7.667bn in September 2011
mates that London accounts France is Europe’s biggest investor have established themselves
for about half of all european in Paris in recent years: one
investment banking activity. notable entrant in 2012, for
“so it is very likely that it is a example, was Verrazzano capi-
much larger centre than France Italy USA tal, which was set up by the
in terms of research, syndi- former Gartmore long/short
cation, trading and all other Switzerland UK
equity manager, Guillaume
skills-based activity conducted Others Germany
rambourg. In one of the most
by investment banks,” says a successful fund launches of
spokesman for the cityuK. France 2012, Verrazzano raised $400m
In foreign exchange trad- for two long-short equity
Investment funds in Europe €7.667bn
ing, London’s lead over Paris is in September 2011 funds. By the start of January
more pronounced. according 2013, total assets under man-
to the latest BIs survey, pub- agement at Verrazzano had
lished in 2010, even though daily Source: Paris
Source: Europlace
Paris Europlace
reached $566m.
France in the Capital Markets | March 2013 | EUROWEEK 11Paris as a Financial centre
De Bresson says a clear indication of sen to work in London and new York “Financial services
Paris europlace’s commitment to sup- rather than Paris. as Boutinet points is an eco-system
porting the expansion of the French out, as measured by its headcount in which issuers,
asset management industry was its of French nationals, London would investors and
creation in January 2012, in a joint now rank as the sixth largest French intermediaries
venture with the aFG, of emergence, city in the world. Only a small frac- across Europe need
France’s first seed-capital fund for tion of those nationals are employed to work with a
young asset management companies. in the financial services sector. nev- common objective”
One reason why the Paris asset man- ertheless, if Paris is to fully realise
agement and hedge fund community its potential as a financial centre, Arnaud de
has continued to thrive is the abun- tempting some of them back across Bresson, Paris
dance of highly qualified quant and the english channel would be a good Europlace
other derivatives experts in France. starting point.
this is the product the country’s edu- the same, say bankers, could be said
cation system, and more specifical- Universal and proud of it of the pioneering work that the aFt
ly of its Grandes ecoles, which exist another reason why France retains has done at the long end of the curve.
alongside French universities and have strong credentials as a financial cen- “Paris is europe’s major liquidity cen-
strong links with banking and indus- tre is the commitment of the leading tre at the long end and in the inflation-
try. today, some 60% of the manag- French banks to their local franchises linked market,” says Burghardt at mor-
ing directors and chief executives of across retail and investment banking. gan stanley. “If you want to be part of
France’s 100 largest companies are France’s universal banks are resolutely the dialogue on innovation in either
graduates of the Grande ecoles system. and irreversibly French, single-mind- of those areas, you need to be in Paris,
many of these star graduates have edly committed to maintaining strong talking to the aFt.”
traditionally made their way into the domestic retail and corporate banking similarly, a relationship with the
banking industry, which is why it is operations. In the investment banking aFt is essential for building a dialogue
close to impossible to scroll through area, meanwhile, most have chosen to with the French corporate sector and
the roll-call of investment banks’ divide their capital market operations other borrowers. “this is a testimony
derivatives technicians without com- between London and Paris. of a strong commitment and can be
ing across several French names (see It is not just the banks that
Investment funds in Europe €7.667bn in September 2011 have used as a springboard, so if you’re not
separate chapter on equity derivatives). committed themselves to promoting part of the local financial community
For example, morgan stanley’s head Paris as a financial centre. the agence you risk being side-lined in terms of
of global equity structuring, selim France trésor (aFt), widely acclaimed corporate relationships,” he says.
mehrez, came from société Générale for being among the most innovative the other principal driver of Paris as
in 2010. But as Burghardt explains, the debt management officesItaly in europe, USA a financial centre is Paris europlace,
quality of the young people emerg- has never been shy about emphasis- which, for example, has been energeti-
Switzerland UK
ing from France’s education system ing its role in championing Paris. as it cally promoting France’s credentials as
means that it is also essential for banks commented when it launched Others its first Germany a european hub for the fast-expanding
like morgan stanley to maintain close inflation-linked Oat, in 1998, “this chinese rmB market. again, de Bres-
contacts with noted academics like inflation-indexed bond issue… also son insists that the primary objective
France
nicole el Karoui, who is a renowned paves the way for other issuers which here is to complement London, rather
Investment funds in Europe €7.667bn
authority on areas such as stochastic will benefit from theinemergenceSeptember 2011 of than to compete with the uK, given
calculus. Demand among banks for this new asset class. these actors will that the chinese potential is large
graduates from her Probability and enhance the role of Paris as a finan- enough to ensure that there is more
Finance course remains as strongSource:as Paris Europlace
cial centre, which will ultimately foster than enough business to go round
ever, even if the reputation of financial economic growth and higher employ- between the two centres. “Our first pri-
engineering is not quite as unsullied as ment in France.” ority is to help large companies and
it once was. smes develop their rmB capa-
It is the quality of the tal- The French market asset management industry €bn bilities, so we are very focused on
ent available in France, says The French asset management industry (AUM €bn) trade finance and the use of rmB
Burghardt, which prompted by French companies in building
morgan stanley to invest in Mandate (including foreign funds) French funds their operations in china,” says
3,000
building a new retail struc- de Bresson. “We are also focus-
tured products desk in Paris 2,500 ing on the issuance by european
in 2011 and 2012, which was companies in the dim sum mar-
2,000
a time when most of its com- ket, where French companies
petitors were cutting. the 1,500 have been very active.” to date,
morgan stanley initiative he says, there has been more issu-
1,000
may, however, be an excep- ance from France than from any
tion which proves the rule, 500 other european country in the
because so many of the best 0
rmB market, with five corporate
young French structurers, 1997 2000 2003 2006 2009 2011 borrowers (air Liquide, Lafarge,
traders and analysts in the alstom, Veolia and renault) and
Source: AFG 2012
derivatives world have cho- Source: AFG 2012 one bank (société Générale). s
12 EUROWEEK | March 2013 | France in the Capital MarketsChristian noyer interview
Noyer heralds new era for
eurozone and for France
Appointed as governor of the Banque de France in November 2003, and reappointed in October 2009, Christian
Noyer is one of the longest standing and most highly regarded central bank chiefs in the eurozone. Before taking
up his present position, Noyer served as advisor to a number of French finance ministers and as head of the
national Treasury.
Beyond the pivotal role he has played in shaping and implementing French economic policy over the last
20 years, Noyer has also been a key architect of the European single currency project. He was appointed
vice-president of the European Central Bank (ECB) when it was set up in 1998, a position he held until 2002.
Noyer’s European and international experience also includes several years serving on the European Monetary
Committee, senior positions at the OECD, the G7, the G10 and the IMF, and the chairmanship between 1993 and
1997 of the Paris Club.
He is a member of the Governing Council and General Council of the European Central Bank, and was
re-elected last year as chairman of the Bank for International Settlements (BIS).
In this exclusive interview with EuroWeek, held in Paris in February, Noyer shared his views on the challenges
and opportunities that lie ahead for the French economy and for the broader eurozone. Interview by Phil Moore.
EUROWEEK: You were frequently quoted in 2012 as saying
that the eurozone was moving in the right direction. Do
you feel vindicated by the recent strength of the euro and
the performance of the eurozone’s financial markets?
Noyer: Things have clearly improved, but this should not
come as a surprise. It’s clear that markets lagged a bit before
taking stock of what has happened, but looking back, enor-
mous progress has already been made on all levels. This is
true in terms of policies aimed at the restoration of sound
public finances in many, if not all, eurozone countries as well
as in the field of structural reforms.
For example, we have seen very extensive progress in areas
like pension reforms in France and Italy, banking reform in
Spain and labour market reforms across much of southern
Europe and France. Noyer: “Enormous progess has already been
We have also seen great progress in terms of surveillance made on all levels... in many, if not all, eurozone countries”
— not just surveillance of fiscal policies, which is a must in
the context of the European monetary union, but also sur-
veillance of competitiveness which is the basis for structur- the start of the sovereign debt crisis. Therefore it is quite
al reforms. This is essential if we are to avoid distortions in natural that 2012 is considered by market participants to
the convergence of competitiveness and therefore prevent a have been a landmark in the creation of a new era for the
re-emergence of the problem of growth moving towards cer- eurozone.
tain parts of the eurozone to the detriment of others.
In structural terms a decisive move in this direction was EUROWEEK: You have often expressed frustration that
the agreement on banking union which will break the nega- markets aren’t ready enough to acknowledge the long-
tive feedback loop between banks and sovereigns and will er term sustainability of monetary union. Are views
ensure the efficiency of the single monetary policy. Last but changing, especially beyond the eurozone itself?
not least there was the new concept developed by the ECB
saying it was determined to do whatever it took to ensure Noyer: Although it is of course clearly understood in
the stability of the euro. The concept of the OMT has the Europe, it is starting to become relatively well understood
merit of making it difficult for the market to fight the central in the US and in Asia. It is taking more time outside Europe
bank once it has expressed a determination to do whatever to develop this comprehensive view, because markets in the
it takes to achieve a certain goal. US and Asia don’t have as much information at their dispos-
On the other hand, the OMT is also credible because of al about Europe. But given how globalised markets now are,
the conditionality. It’s not a case of simply endlessly signing the fact that they have been so positive in recent weeks is to
cheque after cheque. It is framed within the context policies me a clear sign that it has started to be understood relatively
which are geared towards sustainability. well all around the globe.
Finally, of course there is the permanent backstop of the
ESM. So I think that when we look at all these decisions they EUROWEEK: You’ve been speaking with your eurozone
amount to a very comprehensive package which addresses hat on, rather than specifically about France. Some of
all the doubts and questions which have been raised since the data that has come out recently about European
France in the Capital Markets | March 2013 | EUROWEEK 13You can also read
