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

(Full story)

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."