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The Honolulu Advertiser
Posted on: Sunday, May 13, 2001

BancWest, BNP proposal called 'cautious move'

Advertiser Staff and News Services

As chairman of Banque Nationale de Paris SA, Michel Pebereau surprised investors and the French political establishment by making a double takeover bid for investment bank Paribas SA and retail rival Societe Generale SA.

He really wanted SocGen. He got Paribas. Two years later, analysts consider the takeover a success. Yet Pebereau has now reverted to the caution that had previously marked his career.

Pebereau has been looking to build BNP Paribas SA's international retail-banking arm. He hinted at making an emerging-markets purchase. Last week, he chose what he sees as a safer option in buying the remaining 55 percent of Honolulu-based BancWest Corp., parent of First Hawaiian Bank, for $2.45 billion.

"The market at the moment is quick to penalize even the slightest risk-taking," said Philippe Leonnard, a banking analyst at Fortis Securities in Paris. "BancWest is a cautious move, rather than a spectacular one."

The French bank, that country's largest, is offering shareholders of the parent company of First Hawaiian Bank $35 a share for their holdings. BancWest's board of directors approved the $2.5 billion offer, which would take the company private, at a meeting Monday night.

Walter Dods, chairman and chief executive of BancWest, said last week he intends to double the company's size over the next several years, making it one of the 25 biggest banks in the country with more than $40 billion in assets. Dods said much of the expansion to build BancWest into a super-regional bank would be through acquisitions, but he said it is too early to comment on what those might be.

BNP's move to acquire BancWest was attractive because it is a "low-risk" transaction, analysts said. Since the French bank acquired its 45 percent stake in BancWest three years ago, the Honolulu company has met all of the projections made at the time of the merger.

On top of double-digit earnings for the past three years, BancWest has increased its size by 40 percent, increased its efficiency ratio to 52.9 percent from 65.5 percent in 1997, improved its return on average equity to 22.26 percent, and ranked in the top half of the 50 biggest U.S. banks for return on average assets.

BancWest, which is also parent company of San Francisco-based Bank of the West Corp., "is a company, a market and a management we know," said BNP Paribas chief operating officer Baudouin Prot. "The risk to shareholders in, say, emerging markets is much greater than in the U.S."

BNP Paribas intends to use BancWest, which has 252 branches and 1.1 million customers, to sell banking and insurance products in the United States, Prot said. The Federal Reserve gave the French bank status as a financial holding company on April 2, which allows it to sell insurance in the United States for the first time.

In addition to its operations in California and Hawai'i, BancWest has branches in Oregon, Washington, Idaho, New Mexico and the Pacific islands of Guam and Saipan.

Looking for Asia partner

Pebereau said in March that the bank was looking for a retail partner in Asia. Analysts said Singapore's Overseas Union Bank Ltd. was the most likely target.

Last week, France's biggest bank reported that first-quarter profit fell 7.4 percent on decreasing fees from advising on mergers and securities underwriting, to $1.1 billion.

Risk- and cost-control, rather than hostile takeovers, are the usual hallmarks of 59-year-old Pebereau's management style. Flights of fancy are usually reserved for the science-fiction book reviews he pens for French science magazine La Recherche, rather than business.

The key to what author Felix Torres termed Pebereau's "good housekeeping" approach in his book "Bankers of the Future" may lie in his training. A graduate of France's National School of Administration, which among others has produced French President Jacques Chirac and Prime Minister Lionel Jospin, Pebereau started work in 1967 as a government auditor. After working as chief of staff for Economics Minister Rene Monory from 1978 to 1980, Pebereau, who has strong links to France's center-right political parties, wanted to become treasury director.

The election of a Socialist government in 1981 changed his plans. A year later he quit the civil service to become managing director of state-owned Credit Commercial de France, then France's sixth-largest bank. He became chairman in 1987.

Pebereau was drafted to head BNP when the bank was sold to the public in 1993.

Under Pebereau's stewardship, BNP increased profits sevenfold from 1993 to 1998. His ambitions to expand through buying control of Credit Lyonnais SA and regional bank CIC were thwarted by the government, which owned both.

In February 1999, SocGen and Paribas announced plans for a friendly merger that would have created Europe's second-biggest bank. Pebereau was determined BNP wouldn't be sidelined. He made a hostile, $38 billion, all-stock bid for both banks.

He nearly pulled it off. Bank of France Governor Jean-Claude Trichet delayed his final ruling on the six-month takeover battle for more than a week as he tried unsuccessfully to bring Pebereau and SocGen Chairman Daniel Bouton to agreement.

The timing of the Paribas acquisition proved fortuitous. European stock markets boomed in the first half of 2000, and investment banking provided BNP Paribas with record profits and breathing space.

Rivals face pressure

Although investment-bank profit growth is likely to fall this year from 2000 levels, Pebereau's cost-cutting may give BNP the edge over rivals.

"The BNP network has seen costs down in real terms every year since 1994," said UBS Warburg analyst Nick Dove, who has a "buy" rating on the bank's shares.

A year ago, analysts questioned both BNP's future in investment banking and Pebereau's ability to integrate Paribas. He has risen to the challenge. Last month's decision against spinning off the investment bank into a separate unit was seen by analysts as commitment to a business that provided 44 percent of the bank's operating profit in 2000.

Pebereau has managed to squeeze out cost savings that are double the original forecast. For 2000, its first full year of operation, BNP Paribas reported a 58 percent rise in net income, while costs rose 9.3 percent. At SocGen, profit rose 36 percent while costs climbed 17 percent last year.

"The way its revenue is spread, plus the impact of cost savings from the Paribas acquisition, should mean BNP Paribas performs better in the first quarter than its French rivals," said Pascal Decque, an analyst at CDC Bourse in Paris.

SocGen and Credit Lyonnais said last week that first-quarter profit will fall "significantly" because of declining stock markets and an economic slowdown in the United States. Analysts say these banks, rather than BNP Paribas, are potential takeover targets in France.