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BNP's Pebereau: 'There Is No Obsession with Being Large' (int'l edition)

On Mar. 9, France's Banque National de Paris (BNP) launched aa $37 billion double hostile bid on two rival French banks, Societe Generale and Paribas. In the midst of a ferocious battle to convince shareholders of the merits of his plan, BNP Chief Executive Michel Pebereau met with Business Week Paris Bureau Chief Gail Edmondson at BNP's Paris headquarters to discuss his ambitious drive to create one of the world's largest banks. Here are edited excerpts of their conversation:

Q: What are the chances a white knight will be drawn into this battle?
BNP is not a black knight. We are not making a hostile bid. And our objective is not a takeover. It's an association of three banks. It's a friendly project.

Q: Do you find it strange that the French state has intervened to the extent it has, given we are living in the era of the Euro? Can government tip the scales in your favor?
The French regulatory authorities have not intervened in any way different than they have in other European countries.

Q: Why create the biggest bank in the world. Wasn't this illusion of grandeur the vision of Credit Lyonnais?
In all European countries, the banking sector is going through a phase of consolidation. France is in the middle of the same process. Most value-creating operations are those of national and retail -- you don't create more value with a cross-border merger. It's a step in the reconstruction process.

Q: You were involved in discussions for a friendly merger with Societe Generale last year. What went wrong. Was it just a question of egos?
I don't think so.

Q: How would you describe the management culture at BNP which you have created? Is it a culture of monarchy as some people describe?
The culture of BNP is not at all a culture of monarchy. On the contrary, there is at BNP a strong team spirit. My principal preoccupation with my management teams is to create value.

Q: SG and Paribas are more determined than ever to fight against your proposal. Wouldn't you agree that there are big risks involved in a double hostile bid?. Internal fighting could distract management and slow the restructuring.
We don't run that risk. All the management teams [from these three banks] graduate from the same schools. They have the same friends and longtime relations. There aren't personal hostilities between them. As soon as we implement the project, they will see BNP isn't trying to take control. We will share responsibility. Everybody will be willing to cooperate because SBP is a wonderful industrial project.

Q: The market believes you will consolidate faster than you claim, and that there will be more rationalization, as competition increases. How do you respond?
If we can improve the efficiencies once the teams begin working together, it is likely that we will do so. Our program has been fixed over the last four years. In the field of human resources we will not proceed to collective layoffs, as the natural turnover is substantially above the headcount reduction.

Q: Previously, everything would have been decided behind closed doors. Now there is a new set of rules. The outcome should be decided by shareholders. As a product of the anciene regime -- how have you experienced this evolution? It must be at times difficult to adjust to a new set of rules.
Most managers in France studied in the prestigious French schools equivalent to the Ivy League. It may be amusing to charicature the French Establishment, but it is a totally outmoded cliche. I don't see any difference between my career path and that of my American colleagues. I have been a banker for 17 years. France has plenty of profitable companies, and the time when the private sector acted in connivence with governmental bodies is long gone.

Q: Despite your success in retail banking, investment bankers say you don't have the character or the skills to play their game. Can a risk-averse retail banker make a success of a three-way merger of investment banking operations -- and compete with some of the toughest American giants?
My team developed the investment banking business in CCF, while I was the CEO. BNP started developing its investment banking activities after Societe Generale but has accelerated its development over the last five years when I joined the bank. BNP has invested a lot in that field and has become a major player in several businesses. There is an equilibrium to be found in investment banking between risks and profitability. We are behind the U.S., but we don't have any complex. We are confident we can accelerate changes in the face of international competition. SBP will be one of the leading banks in Europe and outside the U.S.

Q: Isn't the double-hostile bid all about creating another French national champion, like Credit Lyonnais?
There is no obsession with being large, but there is an obsession of being very profitable. Credit Lyonnais was a public bank. BNP is private. The politics of Credit Lyonnais was decided with our private sector supervisory board member. The merged bank would have 15% of the French market. That's considered the minimum for high profitability. Our objective for return on equity is 16% at the level of the group.

Q: Do you still have time to read four science fiction books a week?
I'm down to one a week.

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