Feature

posted 29 May 2003 in Volume 6 Issue 8

Springtime in Paris

In a dreary global economic climate, French banks generally have faired better than their British and German counterparts. Top trade-financiers at BNP Paribas, Credit Agricole Indosuez and Natexis Banque Populaire explain to Courtney Fingar what they are doing right.

Natexis Banque Populaire: Cashing in on commodities

Didier Locquet, Global head, Commodity finance

Q: What strategies has your bank implemented in the area of structured commodity finance? Do you plan to continue them?

A: We believe that global services and innovations are key to commodity-backed business for players located in developing and developed countries. Logically, our strategic goal is to be at the forefront of innovation and global services in selected areas of structured commodity finance.

Q: In which markets and commodities is the bank particularly active? Why?

A: Our three traditional areas of interest are oil and gas, metals, and soft commodities. We are active globally, with an emphasis on ‘commodity-rich/cash-poor’ countries, such as Eastern Europe and the Commonwealth of Independent States, Latin America and south-east Asia. Globally speaking, we also focus our financings on raw materials with prices that are regularly quoted in favoured mercantile exchanges.

Q: What other measures are you taking to mitigate risks in more difficult markets?

A: Irrespective of how difficult a market is, we believe that a strong structure as well as good knowledge of the commodity are key to the performance of a deal. That is why we have consistently worked on enhancing our structures for the benefit of both of our clients and partner banks.

Q: How was business last year?

A: Our NBI grew by 14%.

Q: What were the bank’s big deals last year?

A: There were many, of course! Maybe the most noteworthy in terms of their innovative structures were Russian Aluminum in Russia and Hurricane in Kazakhstan.

Q: Which banks do you work most often? Why?

A: Continental European banks have a long history of involvement in our business, as well as some British banks. We typically team up with many of them. And we are gradually bringing in more Asian banks too, building on the strong relationships we have with them locally.

BNP Paribas: A three-fold trade strategy

Alain Biscaye, Head, Global trade services

Q: What accounts for the strong performance of French banks despite the global economic downturn?

A: The major explanation for BNP Paribas’ strong performance is the diversity of its activities in retail banking (the retail activity itself is diversified between French retail, international mid-market retail and specialised activities such as consumer credit) and in investment banking (again, where a large range of activities allows for a managed performance).

Q: What strategies has BNP Paribas implemented in the area of trade finance?

A: BNP Paribas has built and implemented a strong, unique trade strategy, which is threefold:

A network of, so far, 65 trade centres on four continents – dedicated local-trade sales teams, interconnected through intranet worldwide;
A comprehensive trade offer to accommodate the global trade needs of our corporate customers – country/bank risk management, tailor-made solutions, trade products (documentary services, international guarantees of all sorts, trade financing, e-trade finance products);
A continuous drive for quality of process, highlighted by the progressive ISO certification of our process centres worldwide, both in documentary credits and guarantees.

Q: Do you plan to continue these strategies?

A: That strategy has proven to accommodate the global needs of our customers; it has brought back major corporates to BNP Paribas trade services and taken BNP Paribas to the top three trade banks worldwide. We are considering its acceleration more than anything else!

Q: Which markets is the bank keen on or particularly active in?

A: BNP Paribas is still strongest in France, where over 45% of all exporting corporates are customers of BNP Paribas.

BNP Paribas relies on close to 90,000 professionals in 85 countries, among which are nearly 750 trade professionals in more than 70 countries. Its international reach is market effective in Asia (particularly in Hong Kong, Singapore, Taipei and Korea), in Africa and the Middle East (particularly in the Gulf area, Morocco, Tunisia, Lebanon, Egypt, Gabon and Madagascar), in Europe (the Netherlands, Switzerland, Spain, Italy and Hungary) and in the Americas (Canada, South America, particularly Brazil and Panama, and in the United States, both large corporate and in California, trade middle-market through Bank of the West).

Q: How is the bank structuring deals in more difficult markets?

A: Global Trade Services manages country and bank risks and organises structured deals, tailor-made combinations of different techniques (confirmations, syndications, private insurance, SBLCs, refinancing, pre-financing, escrow account, cash cover, pre-payment agreements, forfaiting, etc.) to secure contracts and accelerate payments by our customers.

Q: Which commodities is BNP Paribas most heavily involved? Why?

A: Energy and commodities financing (where BNP Paribas ranks among the top two leaders worldwide) is organised in a separate entity, along with export finance and project finance.

Q: What other measures are you taking to mitigate risks?

A: We are mostly using syndication and reinsurance to manage proactively the country-risk exposure generated mostly by letters-of-credit confirmations.

Q: How was business last year?

A: +10% in a difficult market, with Africa/Middle East and California booming.

Q: What were the bank’s big deals last year?

A: We observe that the market trend is to structure deals closer to the buyer (while deals were traditionally more seller centric). Trade-structured deals are a strong alternative to export and project financing. Although a lot of these deals are confidential, we have been quite successful in the automotive, electronic and energy hardware sectors.

Q: What are the bank’s plans for this year?

Capitalise on the trade-centres network, increase BNP Paribas’ trade presence worldwide and create business synergy between international sites (plus new trade centres to be opened in 2003, including in Lima, Peru, before summer);
Strengthen tailor-made solutions capabilities and the risk-taking capabilities that underline them;
Facilitate trade-products distribution through our e-trade finance range of internet offers (Connexis Trade for documentary credits, import and export, collections, international guarantees; Connexis Trade Receivables, commercialised in the United States, then progressively worldwide, for the discounting of receivables, with or without recourse; active participation in the Bolero initiatives to dematerialise the whole trade-paper process).

Q: Which banks does BNP Paribas work with most often? Why?

A: To manage counterparts and share risks, we work with major European banks, but also, and mostly, with major trade banks in Asia and in the United States.

Credit Agricole Indosuez: Industrial strength

Hervé Uzan, Head, Co-ordination and development, Export finance

Daniel Vignial, Head, Trade finance

Q: What accounts for the strong performance of French banks despite the global economic downturn?

A: French banks have always been very active in following their exporting customers all over the world. They are therefore traditionally present in most areas of export and trade finance. As opposed to some of their international competitors, they have consistent strategies, which means they will not pull out of this sector, even when emerging-market landscapes change.

Q: What strategies has your bank implemented? Do you plan to continue them?

A: Since we are the international wholesale-banking arm of the Credit Agricole Group, our customers are major French, European, Asian, Middle Eastern and Latin American companies. Since they are few in numbers (smaller companies bank with other entities of the Crédit Agricole Group), we are able to offer them a range of tailored services and are dedicated to supporting them in their key projects.

Within the asset-based finance department, the export and trade-finance division actively originates, structures and finances operations originated from France but also extensively from other European or Asian countries relating to large-scale exports (multi-sourcing). These transactions demand specific financial structures adapted both to the high unit amounts of the underlying assets involved and to the rules and regulations governing them. Over time, we have developed a genuine expertise in these activities and cover a whole range of financing schemes – all worldwide.

Q: Which markets is the bank keen on or particularly active in?

A: Credit Agricole Indosuez’s international presence has always been a definite asset and allows us to have specific knowledge of the way business is done in some areas. Heirs of Banque de l’Indochine and of Banque de Suez, we are traditionally most active in the Middle East and Asia, though we have developed specific know-how in Latin America and Central and Eastern Europe.

Q: Which structures?

A: All trade instruments are under one department, and the combination of different structures allows the bank to be close to what the large industrial companies expect. Being under the same roof, the export and trade-finance people are able to offer customers hand-carved solutions to their financing needs – be it bonding, export credits with coverage by ECAs (we are among the main arrangers of multi-source buyers credits), financing, forfaiting, letters of credit, multilateral financing or structured commodity finance, to name but a few.

Q: Which commodities?

A: Our focus is on financing industrial goods for the account of our customers. Sometimes, structured-commodity-finance (SCF) expertise is required to offer clients an efficient financing structure; then we will put our SCF team in the picture, which specialises in export refinancing for crude oil, natural gas and all related products.

Q: With which banks do you work most often? Why?

A: In terms of trade-finance syndications, we work with most European banks active in that specific area. We are often placing risks in small club deals, or will try to find a wider variety of takers when the deal is very large.

Frequently, we invite (or are invited by other French banks) at the request of the customer, since the large French exporters still wish to keep an eye on who is included in the financing. From time to time, we participate in deals offered by international banks, where one of our clients is involved, as long as our involvement is disclosed to the exporter.

Q: How does your bank mitigate risks?

A: We are permanently involved in structures allowing the reduction of risks that we eventually take on emerging markets for the account of our core clients. Apart from

ECA-covered deals, where risk is only on a portion of the face value of the deal, we try to find proper cover in the private-insurance market, or to attract friendly banks in syndications, either disclosed or silent. More generally, we aim to mitigate risks by using a proper financing and security structure as well as by paying close attention to documentation aspects. In emerging countries where the banking market is thin, intervention of multilateral agencies and specific investors is sought.

Q: How was business last year?

A: Within a global economic downturn and a difficult political environment in emerging markets, business was more competitive than ever in terms of actors and financing techniques (local financing, debt instrument, bonds issues, L/Cs, etc).

Q: What were the bank’s big deals last year?

A: We were co-arranger on a US$236m term loan for CFE in Mexico, financial adviser and lead arranger on a US$230m French export credit for Pechiney in Venezuela, lead arranger on EUR91m and EUR129m export-finance facilities for Olefin 10 in Iran, and lead arranger on a EUR250m export-finance facility for Nokia in Poland.

Q: How does the bank intend to ensure success going forward?

A: Developing extra value for our customers should allow us to have increasing business volumes. We tend to work with our customers from the moment they start talking to their clients and, very often, put in quite a lot of work during the bidding phase, before they actually sign their contracts. Undoubtedly, present uncertainties on the international scene are of concern. However, wenoted that our core business (i.e. financing of large-scale export contracts) is not totally indexed on such a macro environment and our multi-geographic area and product capacities should provide us with a sustained flow of opportunities.

Courtney Fingar is editor of Trade & Forfaiting Review.