Banks 

France 
Special Report 
Major French Banks Semi­Annual
Review and Outlook 
Resilient Performance Domestically, But International 
Results Disappointing 
Summary 
Analysts 
As with several other large banks in Europe, the H110 results posted by leading
Janine Dow French banks were much improved on comparable achievements for 2009. While
+33 1 44 29 91 38
janine.dow@fitchratings.com this is encouraging, Fitch Ratings is not expecting any positive impact on the banks’
Long‐Term (LT) IDRs in the near future, and the Outlook on these is Stable.
Eric Dupont
+33 1 4429 91 31
eric.dupont@fitchratings.com One of the major banks, BNP Paribas (BNPP), saw its LT IDR downgraded by one
notch to ‘AA−’ in June 2010, largely reflecting the size of its corporate and
investment banking (CIB) activities, and slightly below international peer average
capital ratios, according to Fitch’s calculations.
In September 2010, the Individual Ratings of Groupe BPCE (GBPCE) and its
subsidiary Natixis were upgraded to ‘C’ and ‘C/D’ respectively. These rating actions
reflected the reduced risk profile at Natixis and the indirect positive impact on the
two banks’ profitability and capitalisation. At the same time, the hybrid
instruments issued by group entities were upgraded to ‘BBB‐’ from ‘BB’.

Table 1: Ratings Assigned by Fitch to Major French Banks

LT IDR/ LT Rating Individual Support Support Rating
Outlook ST IDR hybrids/prefs Rating Rating Floor
Crédit Agricole AA‐/stable F1+ A B 1 A+
BNP Paribas AA‐/stable F1+ A B 1 A+
Groupe BPCE A+/stable F1+ BBB‐ C 1 A+
Société Générale A+/stable F1+ A‐ B/C 1 A+
Banque Fédérative du AA‐/stable F1+ A n.a. 1 A+
Crédit Mutuel
Source: Fitch

H110 results for France’s large banks highlight a number of common threads which
are discussed more fully later in this report. Briefly, these are as follows.

· Retail banking is being brought to the forefront of business development,

particularly in Q210 — Société Générale (SG) bucks the trend and continues to
focus heavily on CIB.
· Loan impairment charges experienced a sharp contraction.
· The domestic retail networks performed well, spurred on by still dynamic loan
growth and low default rates, but results posted by the international retail
banking divisions were, on the whole, poor, with the exception of BNPP.
· No major difficulties in accessing the wholesale funding markets have been
experienced; access is easing following the squeeze at the height of the April
2010 “Greek” crisis.
· Capital adequacy ratios are improving but large French banks are not the best
capitalised among European peers; market pressure for increasing capital is
likely to continue and Fitch believes French banks will try to address this issue
mostly by retaining earnings. Nevertheless, rights issues cannot be ruled out. 

www.fitchratings.com  25 October 2010 

 Banks

Prospects and Outlook for the Ratings

In Fitch’s opinion, BNPP is the best placed among the leading French banks,
reflecting mainly its broad geographic diversification and real efforts made to
reduce its higher risk CIB business (note that within CIB, BNPP’s franchise in the
wholesale financing markets has grown substantially). Furthermore, and despite the
obvious concentration risk which this poses, Fitch believes those banks which are
squarely focused on the French retail domestic market should expect to post fairly
stable, and marginally improving, results in the foreseeable future.
Crédit Mutuel Centre Est Europe (CMCEE) (where Fitch assigns ratings to the issuing
vehicle, Banque Fédérative du Crédit Mutuel (BFCM)), is the only large French bank
to have survived the recent financial crisis without suffering any ratings
adjustments. GBPCE has experienced a real improvement in its results since H209;
management appears confident that valuation adjustments on its legacy securities
will not require substantial further adjustments in the short term and, if so, it is
likely that a repeat of the group’s satisfactory H110 performance will prove
sustainable.
Crédit Agricole’s (CA) troubled international division is being restructured and, in
any event, such activities are still relatively modest in terms of the group as a
whole. Fitch is more hesitant about prospects for SG. The group’s continued
development of its CIB and international retail businesses does not appear to be
risk‐free. Potential for development in Russia is sizeable and Rosbank (81.5%
controlled by SG; ‘BBB+’/Positive) is well placed but the operating environment
remains volatile and recent results achieved in Russia have been weak.
Fitch expects banks globally to come under increasing pressure to strengthen
capital. Particular attention is being paid to developments related to the Basel
Committee’s drive to improve the quality of bank capital. The Basel Committee’s
decision to allow the inclusion of genuine third party minority interests into
qualifying capital will be particularly welcome but those banks with large CIB
businesses will inevitably be hit by requirements to provide more fully against risks
associated with their trading activities.
The Outlook for the LT IDRs of all leading French banks is Stable. The Support
Rating Floors for these banks, at ‘A+’, is high and, provided this does not change,
large French banks will continue to achieve this high minimum. 

Economic Update 
France emerged from the global financial crisis in 2009 having suffered one of the
mildest recessions among European peers, with 2009 GDP declining by 2.5% versus a
euro zone average decline of over 4% for the same period.
France's Q2 2010 GDP performance surprised on the upside‐ registering 0.6%
quarterly growth instead of Fitch’s projected 0.2% quarterly growth rate. The
positive performance was driven by robust private consumption and investment,
while the net trade contribution continued to be negative (on account of import
growth outpacing exports). Fitch expects France to register 1.4% growth in 2010,
with medium term growth reverting back to the long term average (of around 2%)
at 1.8% in 2011, and 2.1% in 2012.
On the fiscal front, France’s mixed record of fiscal discipline coupled with the
impact of the financial crisis have placed its public finances in a weak position vis‐
a‐vis peers, with the deficit at 7.5% of GDP and debt at 77% of GDP in 2009. The
government has articulated its commitment to reducing the deficit to 3% by 2013.
To achieve this target, a number of consolidation measures have been proposed,
including the non‐replacement of half the retiring civil servants, a freeze on real
current expenditures, and a review of local authority and healthcare spending.
Fitch has highlighted that significant downside risks to the government’s
consolidation programme exist.

Major French Banks Semi­Annual Review and Outlook

October 2010  2 
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A major item on the government reform agenda has been overhauling the pension
system, projected by the Pension Advisory Council to run a deficit equivalent to
1.7% of GDP in 2010. Proposed reforms have centred on raising the retirement age
to 62 years (from 60) by 2018, and include a number of tax measures that are
expected to contribute 0.53% of GDP in savings by 2013. According to the
government projections, the proposed measures are expected to balance the
pension books by 2018. The measures were approved by cabinet in July 2010, with
adoption expected by end‐October 2010. Although the French retirement age will
still be among the lowest of France’s peers, Fitch considers the reforms to be
necessary in underpinning French creditworthiness. 

Consolidation and Strategic Changes 
To date in 2010, very little consolidation and strategic changes have been carried
out by the major French banks. In June, BNPP announced the merger of its Turkish
banks, Turk Ekonomi Bankasi (‘BBB‐’ Stable/’F3’) and Fortis Bank A.S., which is
expected to be completed during Q111. BNPP’s Turkish banking activities are
conducted in equal partnership with the local Colakoglu group. Under the terms of
the proposed merger, BNPP will retain a 50% stake in the enlarged merged bank
which will have a domestic deposit market share of around 4%.
In September, GBPCE completed the sale of a regional bank, Société Marseillaise de
Crédit (SMC) to SG. SMC enjoys a reasonable franchise (4% deposit market share) in
the south of France and SG believes it will complement the activities of its own
regional bank, Crédit du Nord (CN, ‘A+’/Stable/‘F1+’). The price agreed by BPCE is
EUR901m (including a EUR29m dividend), high at nearly three times book value.
Proceeds of the sale are being used by GBPCE in October to repay some of the
capital support still owed to the French state (see Capital). GBPCE has earmarked a
number of businesses as non‐strategic (most are involved in the real estate sector
but these also include Coface, the export credit guarantor) and disposals are
expected when market conditions permit.
Oddo et Compagnie (‘BBB+’/Stable) announced, in August 2010, its intention to
acquire Banque d’Orsay (‘BBB+’/Rating Watch Negative) but this transaction is not
significant as it involves small players in the French banking sector.

Table 2: Ranking by Assets and Equity — Major French Banks

Equity Assets
(EURbn) June 10 June 09 June 10 June 09
Crédit Agricole (CA) 76.4 71.6 1,900.6 1,732.5
BNP Paribas (BNPP) 73.2 59.6 2,237.0 2,289.3
Société Générale (SG) 41.5 33.2 1,133.7 1,058.9
Groupe BPCE (GBPCE)a 39.5 32.2 1,123.9 1,083.3
Crédit Mutuel Centre Est Europe 22.8 20.0 447.5 428.5
(CMCEE)
a
GBPCE June 2009 figures are proforma since the group was created in July 2009
Source: Bank presentations, adapted by Fitch

CA has merged its consumer finance businesses and Fitch believes additional
consolidation of business lines will be sought within the large French banking groups
as these strive to cut costs.
BNPP’s integration of the Belgian and Luxembourg businesses acquired in April 2009
from Fortis (referred to in this document as Belux) is progressing well. Synergistic
cost savings totalling EUR402m have been achieved (of which EUR282m were in
H110), slightly ahead of the original plan.
In June 2010, BFCM announced a strategic partnership with Spain’s Banco Popular
Espanol (‘A’/Stable) where the intention is to establish a new joint‐venture bank.
BFCM also announced its planned acquisition of a 50% stake in the consumer finance
Banque Casino from the Casino supermarket chain.

Major French Banks Semi­Annual Review and Outlook

October 2010  3 
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Table 3: Major French Banks ‐ Key Operating Performance Indicators in H110 & H109
CA BNPP SG GBPCE CMCEE
Change Change Change Change Change
H110 H109 (%) H110 H109 (%) H110 H109 (%) H110 H109 (%) H110 H109 (%)
Operating income 17.3 15.0 +15 22.3 19.6 +14 12.9 11.0 +18 11.9 8.1 +47 5.5 4.7 +16
(EURbn)
Operating profit (EURbn) 3.9 2.2 +81 6.9 4.3 +62 2.7 0.7 +312 3.0 ‐2.9 n.a. 1.6 0.8 +91
Operating profit/ 0.44 0.25 +0.20 0.65 0.39 +0.26 0.50 0.12 +0.38 0.57 ‐0.53 +1.10 0.74 0.39 +0.35
av. assets (%)
Operating profit/ av. 10.64 6.31 +4.48 19.46 16.28 +3.18 13.52 3.96 +9.56 14.64 ‐17.63 +32.27 14.60 9.11 +5.49
equity (%)
Source: Bank presentations, adapted by Fitch

Major Banks: Performance Trends and Outlook 
According to Fitch’s calculations, the performance of the large French banks
improved considerably in H110, with aggregated operating income and operating
profit increasing by 20% and 263% respectively on comparable figures for 2009
(see Table 3).
All major French banks are focusing on the development of their retail banking
activities. Nevertheless, CIB contributions still represent a sizeable portion of operating
profits at both BNPP and SG (see Table 4) and this inevitably contributes to results
volatility particularly at times of weak capital markets activity, characterised by thin
volumes and high market volatilities, such as those noted in H110.
As can be seen in Table 5, BNPP stands out among large French banks as having
achieved the most balanced mix of divisional contributions to revenues. GBPCE and
CMCEE are clearly the most dependent on French retail banking, followed by CA
which dominates the domestic retail market. BNPP’s international retail banking
activities have been brought to the forefront, largely as a result of the acquisition
of the retail and commercial banking Belux activities of Fortis. (The acquisition
dates from April 2009 but the Belux impact only feeds into results from H209).
Contributions from specialised financial activities (which include a wide range of
businesses, spanning consumer finance, leasing and factoring) and from the asset
management divisions appear to be stagnating.
The operating profit detailed in Table 4 and revenue shown in Table 5 are taken
from Fitch’s spreadsheets. They differ from figures reported by the banks as certain
items, notably the revaluation of own debt and gains on disposal of private equity
investments, are classified by Fitch as non‐operating. Nevertheless, reclassification
were much lower in H110 than in H109.

Table 4: Leading French Banks’ Divisional Contributions to Operating Profit in H110 & H109
CA BNPP SG GBPCE CMCEE
Divisional contributions
(%) H110 H109 H110 H109 H110 H109 H110 H109 H110 H109
Domestic retail banking 71 104 14 20 33 n.a. 63 n.a. 56 44
International retail banking ‐7 ‐3 13 4 14 n.a. 1 n.a. 9 20
Corporate & investment 31 49 43 62 59 n.a. 21 n.a. 31 45
banking
Specialised financial 12 16 8 5 4 n.a. 4 n.a. 0 0
services
Asset management & 13 16 8 10 4 n.a. 6 n.a. 3 8
private banking
Insurance 18 22 5 6 6 n.a. 0 n.a. 24 27
Activities in run‐off (legacy ‐15 ‐62 n.a. n.a. ‐11 n.a. ‐1 n.a. n.a. n.a.
CIB businesses)
Other ‐22 ‐42 9 ‐7 ‐8 n.a. 6 n.a. ‐22 ‐44
Total operating profit 3,913 2,156 6,912 4,270 2,697 654 3,038 ‐2,904 1,619 847
(EURm)
Source: Bank reported data, adapted by Fitch

Major French Banks Semi­Annual Review and Outlook

October 2010  4 
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Table 5: Leading French Banks’ Divisional Contributions to Operating Income in H110 & H109
CA BNPP SG GBPCE CMCEE
Divisional contributions (%) H110 H109 H110 H109 H110 H109 H110 H109 H110 H109
Domestic retail banking 51 55 15 16 30 33 60 79 59 57
International retail banking 9 11 23 20 19 21 2 2 18 20
Corporate & investment banking 18 21 29 39 30 51 14 17 11 14
Specialised financial services 11 12 15 13 12 12 4 5 0 0
Asset management & private banking 9 7 10 10 8 11 7 9 4 4
Insurance 6 5 3 3 2 2 0 1 10 9
Activities in run‐off (legacy CIB businesses) ‐2 ‐6 n.a. n.a. 0 ‐16 1 ‐24 0 0
Other ‐2 ‐3 5 0 ‐1 ‐16a 12 10b ‐2 ‐5
Total revenue (EURm) 17,242 14,984 22,340 19,607 12,905 10,967 11,946 8,127 5,466 4,694
a
SG reported large negative debt revaluations in H109
b
GBPCE has several non‐core activities which are included in this line
Source: Bank reported data, adapted by Fitch

Retail Banking
Retail banking is being propelled to the forefront of business development at all the
leading French banks. BNPP’s international retail and commercial banking
businesses are far larger than its domestic business, but for all other leading French
banks, the domestic networks still represent the most important pillar of this
business line. GBPCE’s retail and commercial banking business is almost exclusively
domestic; CMCEE is branching out into Germany and Spain, but these activities are
still small in relation to its sizeable domestic business.
Domestic Retail Banking: Domestic retail banking activities performed well across
the board for major French banks in H110. France’s mature retail banking market
does not offer overly exciting growth prospects but progress reported by large
French banks in this segment has been steady, with loan growth averaging an
annual 5.3% to end‐June 2010, spurred on by buoyant demand for housing loans,
and deposit inflow has been strong. Table 6 below shows growth in operating
revenue generated by the French networks for all large French banking groups and
improving pre‐tax contributions made by all the domestic networks.
SG announced plans to further integrate its domestic retail banking activities,
conducted through CN, Boursorama (its online bank) and, since September 2010,
SCM. The intention is that these activities should “converge”; in practice, this is
likely to signify greater standardisation of systems, products and back‐office
functions. Nevertheless, according to SG’s strategic plan announced in June 2010,
domestic retail banking is expected to generate only 23% of net income by 2015.
Asset quality in the domestic loan books continues to hold up very well (cost of risk
averaging a low 42bp of average loans in H110). Retail housing loans are proving to
be the most dynamic loan product within the division, with growth for such loans
hovering around 10% during H110. This reflects low interest rates, the relative

Table 6: Major French Banks – Domestic Retail Banking Details H110 & H109
CA BNPP SG GBPCE CMCEE
Change Change Change Change Change
H110 H109 (%) H110 H109 (%) H110 H109 (%) H110 H109 (%) H110 H109 (%)
Operating income 8,839 8,246 +7 3,350 3,111 +8 3,823 3,656 +5 7,217 6,445 +12 3,229 2,699 20
(EURm)
Impairment provisions 1,059 1,146 ‐8 236 234 1 448 444 1 613 572 +7 348 426 ‐18
(EURm)
Operating profit 2,780 2,240 +24 976 859 +14 894 808 +11 1,912 1,227 +56 912 374 +144
(EURm)
Pre‐tax profit(EURm) 2,780 2,230 +25 976 860 +13 903 813 +11 1,930 1,240 +56 915 380 141
Impairment provisions/ 46 70 ‐24 36 43 ‐7 53 66 ‐13 35 n.a. ‐ n.a. n.a. ‐
av. loans (bp)
Loan growth (%) 4.0 6.4 5.4 6.9 4.0
Source: Bank presentations, adapted by Fitch

Major French Banks Semi­Annual Review and Outlook

October 2010  5 
 Banks

stability of real estate prices in France (with signs of strong recovery in 2010,
particularly in major urban areas) and continued government support extended to
first time and other lower income buyers, plus the temporary extension of tax
advantages for certain buy‐to‐let properties. Demand for SME/professionals loans
fell back, reflecting low confidence levels and hesitance in making investment
decisions. On the positive side unsecured consumer finance has started to rebound.
The low interest rate environment and market volatilities are discouraging retail
investors from placing excess liquidity in specialised managed products and all
banks are experiencing a surge in levels of on‐balance‐sheet — particularly sight —
deposits. The French networks reported average deposit growth in the region of 6%
for the 12‐month period to end‐June 2010.
International Retail Banking: The results of the international retail banking
activities are more mixed. For BNPP, comparison of H110/H109 results posted by its
international retail banking division is not appropriate because Belux’s activities
distort comparisons; for other banks, it is the performance of selected subsidiaries
(notably Greek) which is having a negative impacting on the performance of these
divisions. Table 7 highlights the particularly weak performance of CA’s international
retail business.
For BNPP, none of its international retail banking divisions was loss‐making in H110
and contributions from Belux are growing. Nevertheless, loan growth remains fairly
sluggish in all areas and is negative in the US. BancWest (‘AA‐’/Stable/‘F1+’)
returned to profit and signs of improving loan quality have begun to feed through
(impairment charges were down to 147bp of average loans in H110; H209: 337bp).
The group’s Mediterranean (North Africa, Turkey and Ukraine) division returned to a
small profit, reflecting far lower impairment charges at the Ukranian subsidiary but
H110 net results at Banca Nazionale del Lavoro (‘AA‐’/Stable/‘F1+’) were
negatively affected by a 45% rise in impairment charges and fell back on
comparable results for 2009.
For SG, H110 contributions from its international retail and commercial banking
business were fairly flat (at net income level, down just 3% to EUR239m on
comparable results for 2009), largely due to mounting impairment charges.
Operations in Russia and certain other central and eastern European (CEE)
subsidiaries remain loss‐making, but management confirms that credit demand is
returning in Russia, one of the group’s priority markets. In Romania, where SG holds
a 59.4% stake in BRD (‘BBB’ Stable/’F3’), impairment charges nearly doubled to
EUR94m and this remains a trouble spot for the group. However, improvement is
noted in other countries while steady progress is demonstrated by the networks in
North Africa. SG has a 54% stake in the small Greek Geniki Bank, whose risk‐
weighted assets total EUR4bn; management advises that impairment charges are
still high at this bank, although on an improving trend.
CA’s international retail banking activities are clearly focused on Europe and the
Mediterranean region and disposals of small, non‐core units continue (eg, in

Table 7: Major French Banks – International Retail Banking Details H110 & H109
CA BNPP SG GBPCE CMCEE
Change Change Change Change Change
H110 H109 (%) H110 H109 (%) H110 H109 (%) H110 H109 (%) H110 H109 (%)
Operating income (EURm) 1,616 1,608 0 5,183 3,849 +35 2,423 2,356 +3 231 203 +14 987 933 +6
Impairment provisions 787 563 +40 944 1,447 ‐35 700 609 +15 41 101 ‐59 303 291 +4
(EURm)
Operating profit (EURm) ‐275 ‐56 +391 917 192 +378 366 403 ‐9 30 ‐74 +141 142 170 ‐16
Pre‐tax profit (EURm) ‐654 26 n.a. 930 200 +365 376 417 ‐10 33 ‐61 ‐154 145 182 ‐20
Cost of risk/av. loans (bp) n.a. n.a. ‐ 103 175a ‐41 208 181 +14.9 n.a. n.a. ‐ n.a. n.a. ‐
Loan growth (%) n.a. n.a. ‐ n.a. n.a. ‐ ‐0.9 ‐2.3 ‐ n.a. n.a. ‐ n.a. n.a. ‐
a
Fitch estimates
Source: Bank presentations, adapted by Fitch

Major French Banks Semi­Annual Review and Outlook

October 2010  6 
 Banks

Uruguay). The Italian market is key to the group and further branch acquisitions
were announced in June 2010, following which, according to management, CA will
rank seventh among Italy’s banks.
The Polish, Egyptian and Moroccan subsidiaries continue to develop well but
contributions from equity‐accounted investments in Portugal’s Banco Espirito Santo
(‘A’/Negative) and Spain’s Bankinter (‘A+’/Stable) fell back, reflecting the more
troubled operating environments in those countries. Emporiki Bank of Greece
(Emporiki), in which CA holds a 96% stake, has proved to be a problem for CA.
Emporiki’s negative contribution to CA’s pre‐tax profit reached EUR900m in H110,
which includes EUR569m of loan impairment charges, EUR445m of goodwill
impairment charges and EUR44m of redundancy charges. A restructuring plan is in
place and management does not expect Emporiki to return to profitability before
2012.
The international activities of CMCEE are limited to Targobank in Germany
(EUR11bn loan book), the international book of the consumer finance company
Cofidis (around EUR3bn), a stake in a small Moroccan bank and its partnership in
Spain. GBPCE’s international retail activities are small, mainly focused on the
French overseas dependencies and territories.

Corporate and Investment Banking (Ongoing Business)

Although contributions from CIB are reducing as a proportion of overall results, they
remain significant for BNPP and SG. As CIB results are volatile, the performance of
these divisions can greatly affect overall consolidated results posted by these large
French banks.
H110 CIB results were mixed. H110 operating revenues fell back on comparable
results for 2009 at BNPP and SG, reflecting a fall in fixed income contributions at
both banks and a poor performance at SG’s equities division. Within CIB results, the
common theme is a marked decline in contributions from capital markets activities,
notably in Q210, a sharp upturn in contributions from wholesale lending activities
and a pronounced reduction in the level of impairment provisions.
Capital markets business was affected across the board, afflicted by a high level of
volatility and widening credit spreads which combined to depress investor
nervousness and reduce liquidity. Demand for equities derivatives fell sharply as
investors shied away from more complex products; revenues generated by this
business, once a star contributor to SG’s CIB results, have fallen steadily. Loan
demand within the CIB departments is buoyant only within specialised niches
(commodities, project finance, tailor‐made products), areas in which French banks
are well placed. Competition is fierce but the sharp fall in impairment charges is
helping to compensate for tight pricing.
SG’s business plan highlights the continued strategic importance of CIB going
forward; CIB is expected to remain by far the largest single contributor to overall

Table 8: Major French Banks – Corporate & Investment Banking Details (Ongoing Business Only) – H110 &
H109
CA BNPP SG GBPCE CMCEE
Change Change Change Change Change
H110 H109 (%) H110 H109 (%) H110 H109 (%) H110 H109 (%) H110 H109 (%)
Operating income 3,037 3,110 ‐2 6,437 7,579 ‐15 3,847 5,634 ‐32 1,621 1,390 +17 580 658 ‐12
(EURm)
Impairment provisions 185 552 ‐66 146 1,541 ‐91 64 587 ‐89 156 1,171 ‐87 ‐58 143 ‐141
(EURm)
Operating profit 1,200 1,050 +14 2,947 2,631 +12 1,583 2,966 ‐47 639 ‐614 +204 499 380 +31
(EURm)
Pre‐tax profit (EURm) 1,273 1,121 +14 2,975 2,638 +13 1,580 2,965 ‐47 640 ‐600 n.a. 499 380 +31
Source: Bank presentations, adapted by Fitch

Major French Banks Semi­Annual Review and Outlook

October 2010  7 
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net profits, bringing in around 40% of consolidated net results. While SG’s teams
have considerable experience in this business, Fitch believes this is a fairly high risk
strategy, especially as the expansion of CIB into some of the group’s international
areas (notably Russia) remains as yet untested.

Corporate and Investment Banking (Run‐Off Business)

With the exception of BNPP, which continues to manage its portfolio of legacy
illiquid securities within its CIB department, all major French banks now manage
these assets as a separate unit and results arising from these activities are reported
separately.
The massive securities writedowns noted during much of 2008 and 2009 are no
longer taking place, and the quality of the legacy assets (mainly the portfolios of
illiquid structured securities) retained by the banks appears to be holding up,
particularly at BNPP and GBPCE.
At GBPCE, the activities in run‐off mode are now breaking even, with only EUR27m
pre‐tax losses in H110 (H109: EUR3.1bn). For CA and SG, “run‐off” activities
continue to represent a drain on overall profitability. At CA, these produced a net
loss of EUR390m in H110 (H109: EUR881m loss), reflecting the adjustment of some
loss estimates for CDOs, ABS and CLOs and including a one‐off EUR135m correlation
loss related to CDOs. At SG, the quality of such assets appears to be worse than for
its peers. While the impact of valuation adjustments and other charges to its large
portfolio of legacy assets (some EUR38.5bn) on the bank’s net profit was acceptable
in H110 at only EUR196m, additional losses are likely for the near future.

Specialised Financial Activities

While French banks generally group similar activities (consumer finance, leasing,
factoring) under this banner, it is difficult to make meaningful comparisons on
profitability regarding these activities because of the disequilibrium between all
activities. Nevertheless, all banks reported a surge in results for these activities in
H110, thanks largely to improving volumes.
For CA, these businesses comprise the group’s sizeable consumer finance unit
(where Sofinco and Finaref have merged to form CA Consumer Finance) plus leasing
and factoring businesses. Pre‐tax profit in H110 was up 33% to EUR456m on
comparable results for 2009 despite a 15% increase in loan impairment charges.
Within the consumer finance division, loan impairment charges stabilised at a
historical high of 227bp of average loans and credit demand continues to grow
(+4.6% in France and +6.2% internationally). Demand for leasing and factoring
products remains buoyant.
At BNPP, these activities comprise mainly the large consumer finance business and
leasing activities; pre‐tax profits generated by these activities reached EUR597m in
H110, a vast improvement on comparable results for 2009 (EUR266m), reflecting
improving margins at the consumer business and strong recovery particularly in the
auto finance division. Cost of risk in the personal finance division is improving, but
nevertheless remains fairly high at 237bp (Q209: 313bp).
For SG, the division, dominated by the consumer finance unit, posted modest
results with a EUR86m pre‐tax profit (H109: EUR12m pre‐tax loss). Demand for
consumer finance loans varies considerably from country to country (contraction in
Italy and Poland but growth in Russia, Germany and France) and overall such loans
were up by an annual 3.7% compared with end‐June 2009. The cost of risk, at 234bp,
is fairly stable.
This division’s pre‐tax profit is also small at GBPCE (EUR107m in H110) but is
growing as cross‐selling between Natixis and the group’s regional banks is
developing.

Major French Banks Semi­Annual Review and Outlook

October 2010  8 
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Non‐Operating Results
As stated above, Fitch reclassifies certain items, reported as part of operating
profit by banks, into the non‐operating category. As a consequence, non‐operating
items presented in Fitch’s spreadsheets differ from those published by the banks. In
H110, the difference was only EUR0.7bn (mostly on SG and BNPP), compared with
EUR1.2bn in H109 (mostly on GBPCE).
Changes in the fair value of the banks’ own debt continue to affect, positively or
negatively, overall results. In H110, only BNPP, SG and CA reported these amounts
(all positive; EUR355m for SG, EUR235m for BNPP and EUR55m for CA).
Other significant items in H110 are EUR304m gains on disposals for BNPP, negative
charges of EUR604m for CA made up of a EUR445m goodwill writedown on Emporiki
and EUR159m capital loss on the sale of the group’s small stake (0.8%) in Banca
Intesa Sanpaolo, and EUR108m losses for GBPCE, of which a EUR80m goodwill
impairment charge recognised on SMC as part of its sale to SG.

Asset Quality Trends

Although disclosure regarding asset quality trends at interim stages published by
BNPP is poor, asset quality trends, while patchy, are clearly on an improving trend
for all leading French banks. Traditionally safe portfolios, notably the domestic
retail housing loan books, are holding up extremely well; delinquency rates within
the consumer finance books, while inevitably rising, do not appear alarming and
management indicate that they believe the peak has been reached.
Within international retail banking, only highly troubled countries such as Greece,
Ukraine and, to a lesser extent, Russia, appear to be suffering, although BNPP
reports a worsening of asset quality at BNL. There has been an extraordinary
reduction in impairment charges among the CIB units compared with those posted
in 2009, and management reports a generally robust quality of their wholesale
lending portfolios. SG’s asset quality ratios have suffered significantly since 2009
due to the difficult situation in CEE/Russia and Greece and do not compare
favourably with peers’ (see Table 9).

Table 9: Asset Quality Indicators for Large French Banks – End‐June

2010
(%) CA BNPP SG GBPCE CMCEE
Impaired loans/gross loans 3.00 n.a. 6.50 3.99 4.93
Reserves for impaired loans/impaired loans 88.0 n.a. 55.5 54.6 63.6
Loan impairment charges/av. gross loans 0.65 0.69 0.96 0.34 0.57
Source: bank data, adapted by Fitch

As can be seen in Table 10, legacy assets from the crisis had a very limited impact
on French banks’ operating performance in H110, with the exception of CA.
Nevertheless, legacy assets remain large compared with equity at SG and GBPCE.
According to Fitch, risks mostly lie with the large volumes of hedged assets and
with monoline insurers’ and credit derivative product companies’ (CDPCs) ability to
meet their obligations if the hedged assets were to lose significant value.
While the book value of SG’s legacy assets held in the banking book was about
EUR1.5bn higher than their fair value at end‐March 2010, it was about EUR1.5bn
lower than the value estimated by the external company BlackRock; this external
valuation highlighted a EUR1.1bn shortfall of provisions against RMBS CDOs.

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Table 10: Legacy Assets at End‐June 2010

Fitch Impact on
Legacy assets considering Legacy assets considering eligible H110
notional amounts of net exposure to hedge capital operating
hedged assets (EURbn) counterparties (EURbn) (EURbn) A/FEC B/FEC profit
Bank (A) (B) (FEC) (%) (%) (EURm)
SG 38.5 22.0 31.5 122 70 ‐289
GBPCE 41.0 16.2 32.5 126 50 ‐27
BNPP 25.6 23.7 59.1 43 40 n.a.
CA 15.9 7.7 40.3 39 19 ‐571
Source: Bank presentations, adapted by Fitch

Exposure to Portugal, Ireland, Italy, Greece and Spain Sovereigns

The four French banks included in the stress tests conducted by the Committee of
European Banking Supervisors whose results were published on 23 July 2010 all
disclosed their exposure to wide range of sovereigns, including Portugal, Ireland,
Italy, Greece and Spain (PIIGS). This information is available on the French
regulator’s website (Autorité de Controle Prudentiel). On a net basis, the most
exposed banks to the Greek sovereign are SG (9.6% of reported equity) and BNPP
(6/7%). No information has been publicly disclosed regarding large French banks’
specific private exposures to PIIGS countries.
Funding and Liquidity
All large French banks are dependent, to a certain extent, on the wholesale
markets for funding. Loans/deposits ratios at H110 range from a low of 115% for
BNPP to a high 150% for GBPCE. Many European banks faced harsher funding
markets in H110, reflecting risk aversion, volatile sentiment amidst nervousness
surrounding Greek sovereign concerns and liquidity regulation changes related to US
money market funds, among other concerns, but all leading French banks report
that their 2010 funding programmes are ahead of schedule. There has been strong
bond issuance in H210, public, private or secured.
Fitch has discussed liquidity stress testing exercises undertaken by the large French
banks and the agency has no undue concerns regarding short‐term liquidity stresses.
Regulatory liquidity requirements are fairly strong in France and large French banks
do not have concerns on the short‐term liquidity ratio (the liquidity coverage ratio)
proposed by the Basel Committee. On the other hand, given the strong
transformation activity, the proposed long‐term liquidity regulation (the net stable
fund ratio) is likely to force banks to issue longer‐term debt.
Capital Adequacy
The four French banks included in the July 2010 stress tests all passed the tests
comfortably. Under the harshest test (the “adverse shock + sovereign shock scenario”),
the outcome for the banks’ Tier 1 capital ratios ranged from 8.5% (GBPCE) to 10%
(Société Générale). For further information relating to these stress tests, see Fitch’s
report dated 26 July 2010 “EU Bank Stress Tests: Still A Question of Funding”
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=544165).
GBPCE is the only French bank that has not fully repaid the capital support received
from the state in 2008/2009. Of the EUR7.05bn capital received from the state
since end‐2008, EUR3.55bn has already been repaid. The group will repay another
EUR0.6bn in October 2010 and intends to repay the balance (EUR2.9bn) by 2013
from retained earnings. Fitch considers the group’s eligible capital/risk‐weighted
assets ratio of 7.6% at end‐June 2010 as weak given the stock of risky assets still
held on GBPCE’s balance sheet (around EUR16bn, equivalent to 50% of Fitch eligible
capital) and the high proportion of hybrid instruments (these will account for
around 27% of eligible capital after the H210 repayments to the state).
Large French banks are quite highly leveraged, as evidenced by their low
equity/assets ratios; the very large securities and derivatives portfolios held on

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Table 11: Major French Banks – Capital Adequacy Ratios H110

Reported Tier 1 Fitch core Exceeds the 4.5% minimum Approaches or exceeds the 7%
equity Equity/ Prudential capital/weighted common equity target ratio set by minimum common equity target ratio
Bank (EURbn) assets (%) capital ratio (%) risks (%) the Basel committee for 2015 set by the Basel committee for 2019
CA 76.4 4.02 10.1 5.54a Yes No
BNPP 73.2 3.27 10.6 7.89 Yes Yes
GBPCE 50.5 4.07 9.6 5.01 Yes No
SG 41.5 3.66 10.7 7.34 Yes Yes
CMCEE 22.8 5.11 10.0 7.06a Yes Yes
a
At end‐2009
Source: Bank presentations, adapted by Fitch

balance sheet (in excess of 50% of assets at BNPP and SG and around 40% of assets
at CA) partly explain this. Given uncertainties related to the financial sector
globally, plus new regulatory requirements (see Table 11), investors are likely to
demand higher capital ratios for leading banks globally. Fitch has no concerns about
French banks’ ability to meet the 2015 capital ratio requirements. While
requirements for 2019 are higher, French banks aim to meet this demand by
retaining earning rather than by raising additional equity.

Fitch believes that requirements for computing an incremental risk charge to cover
trading book risk, effective from 2011, are likely to prove onerous globally for
banks with large investment banking activities, notably SG and BNPP in France.
Therefore, Fitch would welcome additional capital buffers at these banks.

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