PARIS -- Officials at Banque Nationale de Paris SA never had wanted to own Paribas SA. From a money management perspective, however, it might not be such a bad thing.
The merger of the two Paris-based banks will form a money manager with more than $180 billion in assets under management. What's more, the pieces are more or less complementary.
Paribas is the smaller of the two entities, with about $83 billion in assets under management. But its Paribas Asset Management unit, with $60 billion in assets, is by far the more international and institutional, with big-name clients such as California Public Employees' Retirement System and the United Nations Joint Staff Pension Fund.
In contrast, BNP Gestions, with about $100 billion in assets under management, has more of a domestic and retail orientation, and only in the past two years has been expanding its institutional capability. Assets now are split about 50-50 between institutional and retail clients. Plus, its institutional clients tend to be smaller, and are dominated by corporations and insurance companies rather than pension funds.
More than two-thirds of BNP's assets are invested in fixed income, while only one-third of Paribas Asset's mandates are in pure fixed income.
What's more, BNP is viewed as a kinder and gentler partner than the brasher Societe Generale SA, which lost its bid to merge with investment bank Paribas. While Paribas management strongly supported a merger with retail bank SocGen, sources said junior Paribas Asset Management employees were leery of SocGen officials and actually favored a deal with BNP, which is noted for its culture of respecting individuals.
Recognizing Paribas' expertise in institutional asset management, the combined bank last week named Paribas veteran Dominique Hoenn as one of two key deputies, with responsibility for overseeing asset management, among other areas. Reporting to him is BNP official Vivien Levy-Garboua, named head of asset management, insurance activities and international private banking. Both executives sit on the bank's 14-member management committee.
Mr. Levy-Garboua does not have any direct experience in money management; his most recent post was running BNP's international bank. Thus, the next round of appointments -- expected within two weeks -- will be critical. Gilles de Vaugrigneuse, head of BNP Gestions, is expected to be named to a top slot; his counterpart at Paribas, Francois Debiesse, is expected to be shifted to international private banking. The fate of Paribas' Guy de Froment, London-based institutional asset management chief, is unknown.
Gilles Glicenstein, senior executive vice president for BNP Gestions, said: "BNP is not intending to impose its own model (on) Paribas."
Meanwhile, Timothy Malloch, chief executive officer of Paribas Asset Management Inc., New York, said the two firms complement each other and he expects the value of Paribas' institutional platform will be recognized.
The irony is that the two banks are coming together. While Societe Generale had hungrily sought to merge with Paribas, it had fought fiercely BNP's subsequent attempt to purchase both banks. But BNP actually had sought SocGen for its retail banking network, and never had considered Paribas by itself as the prize.
In the end, BNP garnered 65% of Paribas' shares, while winning 37.15% of SocGen's shares, and just 31.8% of the latter's voting rights.
The six-month battle for control changed French banking. The fact that the regulators lost out in their attempt to create a three-way merger is "a watershed," one expert said.
The debacle leaves Societe Generale "in a big disarray," one French observer said. For the past six months, SocGen and Paribas executives have worked together closely in formulating plans for the future, down to integration of product lines. The presidents of both banks even have been sharing an office.
"In a way, they have to de-integrate. This is going to be a very messy thing," one expert said.
The failed merger leaves Societe Generale vulnerable because bank officials effectively have admitted the bank is not strong enough on its own.
There already are suggestions that SocGen will form an alliance with either Banco Santander Central Hispano or CGU PLC, both of which own big chunks of SocGen stock.
However, one insider said the French bank is unlikely to merge and would instead pursue more narrowly defined alliances, such as in fund distribution or bancassurance.
Still, it will not a bed of roses for BNP-Paribas money management activities. While the merger will consolidate their strengths in the French market, "it doesn't give them any edge" in the rest of the world, one French expert said. In fact, some French institutional clients now using both banks might choose to move assets to other firms for diversification purposes, he said.
BNP, however, has been building its presence in the emerging markets of Asia-Pacific and Latin America. It has just nailed down a joint venture with Dongwon Securities Co., South Korea's fifth-largest securities firm, to distribute the bank's investment products there and help run the firm's investment trust, with $5 billion in assets.
And the merger raises a question mark on the role of Fischer, Francis, Trees & Watts Inc., New York. BNP purchased a minority stake -- believed to be between 24% and 30% -- in the New York-based firm earlier this year. Fischer Francis, with some $30 billion in assets under management, was handed responsibility for managing BNP's global fixed-income portfolios.
Officials at Fischer Francis did not return phone calls.
Paribas and BNP also overlap on European equities, a key product area with the onset of the euro. Paribas, however, uses a pan-European approach, while BNP has adopted a euroland-only strategy.
Paribas runs a $1.4 billion European equities portfolio for the $160 billion CalPERS fund, Sacramento. CalPERS spokesman Brad Pacheco did not have any comment on the merger.
BNP also has strengths in various alternative investment products such as managed futures and guaranteed funds.
