A first look at France's draft bank reform in detail

Following on from our Nov. 15 scoop, Reuters was the first international media to get hold of the draft law

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By Lionel Laurent and Matthias Blamont

PARIS, Nov 28 (Reuters) - A soon-to-be-finalised French banking reform law will have a wider-than-expected scope as Francois Hollande's administration seeks to rein in several related sectors, according to a draft seen by Reuters.

Extra powers will be given to France's banking and capital-markets regulators to keep banks, brokerages, insurers and consumer-credit providers in line and to protect taxpayers from the cost of bailing out failed institutions, the document said.

It marks a flagship attempt by the administration of President Hollande to deliver on a campaign pledge to shake up the financial sector by separating speculative banking businesses from those deemed useful to the economy.

The reform holds back from curbing banks' market-making activities, as previously reported by Reuters, putting France at odds with tough proposals by the EU's Liikanen Commission for a broader ring-fencing of trading activities.

"The option chosen by the French government is to not entirely separate activities," said a source close to the situation. "France wants to pave the way in Europe."

The centrepiece of the reform demands banks like BNP Paribas and Societe Generale put their proprietary trading activities and financing for certain types of hedge funds and private equity into separately regulated entities, according to the draft law due to be unveiled in December.

These entities will be banned from high-frequency or commodity-derivatives trading. Client-related activities like market-making, hedging and other investment services will be spared, as will banks' own investment and cash-management operations, keeping them with the parent group.

Split up French banks? Not gonna happen under President Hollande, our sources say

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By Lionel Laurent and Matthias Blamont

PARIS | Thu Nov 15, 2012 2:02am EST
 

(Reuters) - France is expected to reject tough rules proposed by Europe to curb the riskier activities of banks, after months of lobbying by the industry.

The draft rules to be unveiled next month will focus on banks' proprietary, high-frequency and algorithmic trading, sparing market-making - the buying and selling of securities on behalf of clients, according to two sources briefed on the government's position.

"Market-making is not being considered as a risky or speculative activity," one of the sources said.

French President Francois Hollande is therefore steering towards rejecting a call by the European Union's Liikanen Commission last month for most market-making and trading activities to be ring-fenced from mainstream business.

Banks like BNP Paribas and Societe Generale have been lobbying against any restrictions that could give foreign rivals such as those in the U.S. an advantage. Talks between banks and government officials ended this week.

Banks are concerned that the rules will add costs and complexity at a time when the industry is only just recovering from a year-long drive to restore investor confidence by selling assets and cutting staff.

"We are convinced that (market-making) is something which is a solid economic client-related activity...In our mind, what is speculative is very limited," BNP Chief Financial Officer Lars Machenil told analysts earlier this month.

Don't expect "miracles" in the eurozone next year, SocGen CEO tells us

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PARIS, Nov 8 (Reuters) - Societe Generale expects economic growth to be sluggish in 2013, making it difficult to give accurate forecasts for next year, the French bank's chief executive told Reuters Insider television.

"Economic growth should remain sluggish overall (in 2013), with a key uncertainty in the U.S. - the fiscal cliff - in the beginning of the year," Frederic Oudea said in an interview.

"In the euro zone, we can't expect miracles."

French retail banks are set for a wake-up call - it's time to close branches and cut costs

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By Lionel Laurent and Matthias Blamont

PARIS, Nov 1 (Reuters) - French banks' nationwide networks of branches are coming under scrutiny as ripe for cost cuts, ahead of the lenders' quarterly results due next week.

Investors will also be looking closely at fixed-income revenues from investment banking and whether any of the big French lenders will try to grab market share from Swiss rival UBS's worldwide retreat from this business.

French retail banks have packed a powerful profits punch over the past two years - buoyed by fee income on savings products, a boom in mortgage lending and archaic interbank levies.

But a slowing economy, tougher regulations and low interest rates have slowed or even halted revenue growth, putting pressure on banks to cut costs in a bid to boost profit.

This is a Europe-wide trend but one that matters especially for heavyweight French banks like BNP, Societe Generale and Credit Agricole, which have relied on their domestic retail business to offset the impact of roller-coaster financial markets on their investment banks.

French retail banking accounted for 17 percent of BNP's total revenue, 32 percent of SocGen's and half of Credit Agricole's in the second quarter.

"The outlook for revenue growth is looking a lot tougher these days," one French retail-bank executive said. "I don't know how revenues will grow given the crisis, incoming Basel III regulations, falling fee income and falling interest rates."

Another put it more bluntly: "Our fee income is dropping all the time. Every time we think it can't fall any further, it does," he said. "We're going to have to cut costs."