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Marketing Strategy of Credit Lyonnais -
December 16th, 2010
Crédit Lyonnais is a historic French bank. In the early 1990s it was the largest French bank, majority state-owned at that point. Crédit Lyonnais was the subject of poor management during that period which almost led to its bankruptcy in 1993. It was acquired by another French bank (Crédit Agricole) in 2003.
Total Assets: EUR 1.72 billion ($1.63 billion) (1999)
Stock Exchanges: Paris
Ticker Symbol: 18420.PA
NAIC: 52211 Commercial Banking
Crédit Lyonnais Group has refocused on its three core businesses in retail financing services in France, corporate and institutional banking and international asset management, activities in which it has real competitive strengths. Through its extensive branch network, Crédit Lyonnais offers a full spectrum of banking products and services to personal, professional and business customers in France, placing a strong emphasis on customer service and satisfaction. Crédit Lyonnais also offers its major corporate and institutional customers an extensive choice of products and services, designed to meet their specific needs in terms of technical complexity, innovation and worldwide coverage. The Group also provides a global asset management offer encompassing both domestic and international fund management and private banking services. Crédit Lyonnais enjoys an excellent reputation and regularly receives awards for its fund performance and management quality.
1863: Crédit Lyonnais opens for business in Lyons.
1878: Bank's elegant Paris headquarters constructed by Gustave Eiffel.
1914: World War I ends the company's 'Belle Époque.'
1946: Crédit Lyonnais nationalized after World War II.
1988: Haberer directs the bank in aggressive expansion.
1990: Bank's Dutch subsidiary makes disastrous $1 billion MGM loan to Giancarlo Parretti.
1993: Haberer fired as Crédit Lyonnais posts a $1.2 billion loss.
1999: Bank is privatized.
As one of France's three largest banks with assets of EUR 200 billion, Crédit Lyonnais provides a full range of commercial banking and financial services domestically and worldwide. Active in 60 countries, Crédit Lyonnais was once the world's largest bank. It has earned a reputation for innovation since the 19th century and was a pioneer in automated teller machines (ATMs). Ambitious expansion in the 1980s, however, spawned the world's largest financial disaster, estimated to have cost the French government $25 billion. Nevertheless, Crédit Lyonnais's 1999 flotation has made it something of a privatization success story, however sullied by scandal.
Origins and 'La Belle Époque'
Crédit Lyonnais was created to fulfill a need in France for a bank that would accept small deposits during the expansion of the Second Empire, when the country needed an infusion of capital. The city of Lyons, with its rich and long-established banking tradition and the residents' desire to become independent of Parisian tutelage, was favorably suited to the formation of such a bank. The legal pathways were made clear by a May 23, 1863 law permitting the establishment of businesses without governmental authorization. The active personality of 39-year-old Henri Germain was also an important element in the bank's foundation.
The son of a prosperous Lyons family, Germain had been a lawyer, stockbroker, silk merchant, and mine manager before launching Crédit Lyonnais and becoming its first president. Of the bank's 20 million francs of capital (40,000 shares at 500 francs each), he became the biggest shareholder with 2,150 shares. On July 6, 1863, 200 businessmen met in the presence of a notary in Lyons to finalize a charter for Crédit Lyonnais, and on July 26, the bank opened for business at the Palais du Commerce in Lyons.
In its first years, Crédit Lyonnais operated as a deposit bank and served the needs of local business. Sudden losses in a dye factory in Lyons, however, deterred further direct participation in businesses. Germain's edict that the amount of all deposits and current accounts be equaled by liquid capital for immediate reimbursement became not only the rule at Crédit Lyonnais, but at all deposit banks. Such policy became influential in the bank's increasing reputation for reliability and security, as it expanded both in France and abroad.
By 1865, Germain had married into a Paris family and assumed a seat in the French parliament. A newly established branch of Crédit Lyonnais in Paris became increasingly more important, and Germain traveled regularly between Lyons and Paris. With the beginning of the Franco-Prussian War in 1870, Germain moved some of the bank's assets to London, creating Crédit Lyonnais's first foreign branch. During the Commune of 1871, a provisory office was installed at Versailles. Germain's active participation in negotiations over the financial clauses of the Frankfort treaty, which ended the Franco-Prussian War, reflected his growing influence in the financial community and helped to assure that his business went on as usual after the war. As a parliamentarian, Germain was much in the public eye and was suggested as a candidate for Finance Minister, but his attentions remained fixed on Crédit Lyonnais.
During the 1870s, Germain acquired some capital for expansion in Paris, southeastern France, and abroad. The construction in 1878 of a new, ornate building on Boulevard des Italiens to house the central Paris branch, which became known as a 'temple of finance,' signaled the ultimate dominance of Paris over Lyons in the bank's future. (It was built by Gustave Eiffel.) Branches also were established in Aix-en-Provence, Nice, and Montpellier, among other cities in the southeast of France. The international network of branches, which would become fundamental in the history of the bank, began as offices added in Constantinople and Alexandria in 1875, Geneva and Madrid in 1876, and Vienna in 1877. The establishment of a branch in St. Petersburg represented the first instance in Russia of a bank operating under its foreign name. The New York branch opened in 1879 on Broadway, but subsequently closed its doors at a loss in 1882 because of high U.S. federal government taxes. By 1882, 30 offices had opened in Paris alone, as well as others in Bordeaux, Toulouse, and Reims.
The recession of 1882 and the loss of confidence in the Banque de l'Union Générale, due to speculation, put a halt to Crédit Lyonnais's expansion. The crisis of its fellow bank, however, helped establish Germain's policy of maximum reimbursement of deposits in the face of the numerous withdrawals that took place, and confidence in Crédit Lyonnais grew. In 1888 the bank's prestige suffered somewhat due to the failure of its investment in the Panama Canal project. Nevertheless, that year Crédit Lyonnais played a substantial role in the 500 million franc loan to Russia, and these foreign loans became a specialty of the bank, although they were sometimes criticized for diverting French capital abroad. Crédit Lyonnais's business showed no signs of slowing from the late 19th century to the First World War, a period that became known as the company's 'Belle Époque.' The bank invested in real estate during this time, notably in Paris and on the Côte d'Azur, while also taking part in loans to foreign governments after the liberation of territory in 1870. From 1882 to 1900, branches increased from 110 to 189 with offices added in Moscow, Jerusalem, Madrid, and Bombay.
From 1901 to 1913, total assets rose from 1,700 million to 2,830 million francs. Despite the suspension of Russian government loans at the onset of the Russo-Japanese War and the circulation of pamphlets by radicals claiming that Crédit Lyonnais's foreign branches were political centers of reactionary propaganda, the bank's prosperity did not wane. Germain died in 1905, but not before witnessing Crédit Lyonnais overtake Lloyd's and Deutsche Bank as first in the world in total assets, a ranking it maintained until 1920. Even Vladimir Lenin deposited his money at Crédit Lyonnais while in exile in France. The central office in Paris, designed by the architect Bouwens and completed in 1913, symbolized the worldwide power and prosperity of Crédit Lyonnais, at a time when the Federal Reserve Act had only just allowed U.S. banks to expand overseas.
WWI and WWII
With the outbreak of World War I, Crédit Lyonnais's supremacy was threatened. The war years saw weaker bank leadership and declining public confidence, in light of the bank's limited liquidation of accounts. With the complete cancellation of the Russian debt, due to the revolution in that country, came strong discontent among Russian clientele whose deposits were lost. In Petrograd, the Bolsheviks liquidated all private banks, Crédit Lyonnais included, and replaced them with the Bank of the People. Elsewhere, some 135 branches, now located in occupied territory, had limited or stopped services. The bank evacuated assets from Paris upon the German advance in the spring of 1918.
The postwar period of 1920 to 1929 was one of economic difficulty for Crédit Lyonnais, which for the first time in 40 years lost its premier position in the world to Société Générale. Furthermore, the bank faced economic inflation, which depleted its assets as well as those of its clientele, and competition from new, smaller banking establishments. As a result of the low salaries it now offered, the bank experienced a massive employee strike in the summer of 1925, and, four years later, one fifth of Crédit Lyonnais was bought out by the Berlin bank Mendelssohn. By 1928, deposits at Crédit Lyonnais were increasing once again. Due to a refined strategy for its foreign branches, an increase in new branches in France, and stronger leadership, Crédit Lyonnais was able once again to overtake Société Générale as the bank with the most assets in France. The bank withstood the Great Depression despite closing a few foreign branches and the death of the Madrid director in the Spanish Civil War. The company had to cut 18 percent of its staff, however, in the face of a 20 percent drop in profits.
At the outbreak of World War II, a 32-car train was used to evacuate 500 tons of stocks, bonds, and securities from Paris for safekeeping. In much of France, with the exception of the Alsace and Moselle regions, normal operations continued against great odds. Many Crédit Lyonnais directors and employees were killed in bombings or in combat during the Liberation. By 1944, normal relations were reestablished in Africa, and the bank retook possession of its offices in the Alsace and Moselle areas. All overseas offices were entirely reunified the following year. Most important for Crédit Lyonnais and the three other largest French deposit banks, the banking industry in France was nationalized after the Liberation. On January 1, 1946, Crédit Lyonnais shares were taken over by the government, and the bank remained a commercial company subject to common regulations in force for all private banks. Eduard Escarra, the bank's former general manager, became president after several years of transition.
Due to protective legislation and less competition, Crédit Lyonnais experienced a successful postwar period. Expansion occurred in Latin America and Africa, after decolonization, as well as in Iran and Lebanon. During this time, Crédit Lyonnais became one of the front-runners in the application of banking technology and was the first bank to install automatic teller machines in 1956 and to introduce the Carte Bleue credit card in 1967. From 1966 onward, the French government created favorable conditions for a new cycle of expansion and innovation in the banking industry. In 1967, legislation to institute a 'mixed bank' was passed, which effectively allowed for the bringing together of business banks and deposit banks. In addition, certain regulations overseeing the opening of branches were revoked. The merger in 1966 of BBCI and CNEP, the third and fourth largest French banks, into the Banque Nationale de Paris (BNP), made Crédit Lyonnais second in France. This merger, however, stimulated a dynamic competition between BNP, Société Générale, and Crédit Lyonnais.
Favorable legislative conditions were accompanied by an increase in the number of Crédit Lyonnais branches, which rose from 828 to 1,905, as well as employees, which increased from 29,000 to 47,000, in the years 1967 to 1974. The central office in Paris was renovated, and a branch was opened in 1973 at La Défense, the business district on the west side of Paris, to help decongest operations downtown. Another period of internationalization began in the early 1970s, pushing Crédit Lyonnais back into the ranks of the world's ten largest banks. Branches were opened in Tokyo in 1970 and in Singapore, Sydney, and New York the following year. In South America, Crédit Lyonnais helped form Banco Frances e Brasileiro in Brazil. It formed a consortium during this time with Germany's Commerzbank, with Italy's Banco di Roma, and later with Spain's Banco Hispano Americano to offer medium-term Eurocurrency loans. Crédit Lyonnais became the first western bank to obtain representation in Moscow in 1972.
Such expansion proved difficult to direct at times, however, and social unrest proved detrimental to the bank. In 1968 a general strike led by a Trotskyist caused the central office to close for ten days. Another long strike occurred in 1974, expanding to include other banks in the industry. In 1976 the bank's president, Jacques Chaine, was shot to death near the central office by a suicidal labor movement fanatic.
Stumbling Toward Privatization in the 1980s and 1990s
In 1982 France's socialist president, François Mitterand, completed the steps that nationalized the country's banking industry. Crédit Lyonnais, however, had already been nationalized for 36 years, and when a more conservative government returned briefly to power between 1986 and 1988, the new president of Crédit Lyonnais, Jean-Maxime Léveque, began to prepare the bank for privatization. He guided Crédit Lyonnais into dealings in securities and helped create Clinvest, the bank's investment arm in 1987. Such measures were halted subsequently by the return of the socialists to power in 1988.
That year, Jean-Yves Haberer, the former head of the Paribas merchant bank, assumed the bank's presidency. His leadership of Crédit Lyonnais was based on a commitment to the development of marketing and automated banking, more active cooperation with businesses, the development of European and international network strategies, and a unified European market. The bank took an extremely aggressive approach to expansion under Haberer, buying brokerage firms, financial service companies, and other banks, as well as nonbank assets. In 1990 Crédit Lyonnais took control of Thomson-CSF's finance operations subsidiary, Altus Finance, thereby bolstering profits. In 1992 the bank increased its stake in the Irish leasing and banking company Woodchester Investments to 48 percent. Crédit Lyonnais also acquired 20 percent of Aerospatiale from the French government after providing money for the development of new aircraft and missiles.
The bank had implemented its aggressive strategy in an effort to position itself for the 1993 opening of a single European market. In fact, Jean-Yves Haberer's organization of Crédit Lyonnais was that of a pan-European bank. In 1989 the company had established Crédit Lyonnais Europe, a wholly owned subsidiary, to consolidate the company's various European commercial banking units. Crédit Lyonnais's acquisitions, including Germany's Bank fur Gemeinwirtschaft in December 1992 and several in Spain and Italy, increased the size of its operations beyond the minimum required to operate successfully in the European community. In November 1991, Crédit Lyonnais was the lead manager of Spain's 13-year FFr 6 billion issue, which underlined the growing importance of the French franc sector of the Eurobond market. The deal, and its outstanding size and maturity, made Crédit Lyonnais the lead bookrunner for French franc Eurobonds.
In addition to concerted efforts at European expansion, Crédit Lyonnais's policy included a program of international expansion to transform itself into a universal bank, along the German model. As of 1993, Crédit Lyonnais was close to opening offices in China and was one of only several foreign banks awarded licenses to operate branches in Vietnam. It planned to enter the market in eastern Europe when political conditions became more favorable.
By the early 1990s, Crédit Lyonnais had a domestic network of approximately 2,400 branches, more than 700 offices in Europe, and 800 across the rest of the world. Along with the aggressive policy of acquisition and expansion under Haberer, however, came several bad loans and growing debt. Whereas profits in 1990 had increased 20 percent from the previous year, Crédit Lyonnais's first half 1992 earnings fell by almost two-thirds, as bad loans forced the bank to nearly double its loan provisions.
It had abused 'The Power to Say Yes,' its motto in the 1980s. The bank had several high-profile debtors, including the late Robert Maxwell, the former Soviet Union, the developer Olympia & York, and Giancarlo Parretti, who borrowed $1 billion through the bank's Dutch branch to take over Metro-Goldwyn-Mayer (MGM) in 1990. Parretti's inability to turn MGM around led to a suit removing him from the board. A Delaware court found him guilty of breaking a government contract and ordered him to relinquish control of MGM-Pathe Communications to Crédit Lyonnais in 1992.
In May 1993, France's newly elected conservative government announced a sweeping privatization program, involving 21 large, state-controlled companies, including Air France, Renault, and Crédit Lyonnais. The sell-off was to take place in the fall of 1993 on a company-by-company basis. Unlike a similar program carried out between 1986 and 1988, no limit was placed on foreign acquisition of shares. Among those expected to look at Crédit Lyonnais were other large European institutions that wanted to create pan-European institutions.
Haberer was sacked by a new conservative administration in November 1993. After his ouster, he claimed that the government pressured the bank into investing in money-losing, state-owned enterprises like Aerospatiale and the steel company Usinor Acilor, which together cost Crédit Lyonnais FFr 1 billion in 1993. Crédit Lyonnais's FFr 6.9 billion ($1.2 billion) loss in 1993 prompted an investigation into the bank's lending methods.
French conservatives blamed socialist cronyism for the funding of Giancarlo Parretti's doomed takeover of MGM and the purchase of adidas, the athletic apparel company, from Bernard Tapie. These were just high-profile examples of FFr 60 billion of nonperforming loans. Crédit Lyonnais's U.S.-based corporate banking unit and Asian securities brokerage, however, stood out amid the bleakness. The acquisition of California-based Executive Life brought with it a junk-bond portfolio that paid off handsomely, although the question of whether it was illegal for state-owned Crédit Lyonnais to buy the company caught the attention of U.S. investigators (Department of Justice, FBI, Federal Reserve). Crédit Lyonnais had covered its tracks by buying the company in a secret pact with French insurer MAAF.
After Haberer, former insurance executive Jean Peyrelevade took the reins. Selling half the bank's $11 billion industrial holdings and cutting about 4,500 jobs in Europe while shuffling upper management were on his agenda. He dramatically seized $50 million of Tapie's assets, including his furniture, in May 1994. Still, Crédit Lyonnais lost FFr 4.5 billion in 1994. Real estate produced the biggest losses. The French government had to recapitalize Crédit Lyonnais in the amount of about FFr 5 billion, much to the chagrin of France's other banks. Crédit Lyonnais tempered the bad news with a new advertising campaign. 'Votre banque vous doit des comptes,' it said, inviting customers to share concerns during an all-day open house. 'Your bank owes you (an accounting).'
The French government announced its five-year recovery plan for the bank in March 1995. Selling off assets, MGM in particular, was a key part of the plan. (It finally sold the studio for $1.6 billion in 1995-96.) There was also a four-year austerity program. Finally, Crédit Lyonnais promised to pay the government a 30 to 60 percent dividend once it managed a profit.
The government's own damage control was seen by the Economist as a scandal in itself. In April 1995, it created the Consortium de Realisation (CDR) to sell off Crédit Lyonnais's bad debts. The CDR was not truly independent, however, and ended up also acquiring some of Crédit Lyonnais's more valuable assets, which it purchased with cheap loans from Crédit Lyonnais itself. CDR effectively recapitalized the Société de Banque Occidentale, the subsidiary that made the infamous Tapie loans, and sold it back to Crédit Lyonnais at a bargain, much to the dismay of already-privatized competitors and the European Commission, which estimated the total cost of the bailout at FFr 150 billion.
Crédit Lyonnais's venerable 'temple of finance' was set ablaze in 1996. The fire destroyed two-thirds of the structure. In 1997, U.S. prosecutors expanded their investigation of the MGM deal to include Crédit Lyonnais Bank Nederland (CLBN), the subsidiary that Parretti and his money-laundering accomplice Florio Fiorini bribed into making the MGM loan. Investigators in France and Italy approached the scandal from other angles.
A long-awaited flotation on the Paris bourse was postponed in 1998 because of low values for financial stocks. Other bad news came from a Russian default that caught Crédit Lyonnais along with several other lenders. Still, the bank posted a profit of EUR 165 million in 1998, up from 1997's EUR 54 million in 1997. Forbes reported that Crédit Lyonnais had dropped to the world's 39th largest bank by 1999, and Fortune noted the French government had spent $25 billion on its recovery--$7.5 billion more than the Marshall Plan when adjusted for inflation.
There were many enthusiastic investors for the flotation in the summer of 1999, which raised about FFr 45 billion for the government. It retained ten percent of the company and employees owned four percent. Crédit Agricole, AGF, Allianz, AXA, Commerzbank, BBV, CCF, and Intesta together owned about a third and were restricted from selling their shares for two years, protecting Crédit Lyonnais from takeover attempts, as the European Commission had limited the bank's expansion in approving the French government's bailout.
Principal Subsidiaries: CL Assurance, Résurance, Courtage; CL Capital Markets International; CL Développement Economique; CL Eurofactors France; CL Eurofactors Participations; CL Europe SA; CL Global Banking; CL Leasing Europe; CL Leasing Overseas; CL Marchés de Capitaux; COGEFO; Compagnie Rhodanienne de Bestion; Consortium Rhodanien de Réalisations; Crédit Lyonnais Securities USA Inc.
Principal Divisions: Retail Financing Services; Corporate and Institutional Banking; International Asset Management.
Principal Competitors: Banque Nationale de Paris S.A.; Caisse Nationale de Crédit Agricole; Société Générale.