BNP Paribas: RBS acquisition improved brand recognition and profile
In the second of a series of articles about the acquisition of RBS's structured products and retail investor equity derivatives (IP&ED) business by BNP Paribas earlier this year, we look at other recent acquisitions by the French bank and the areas that have boosted the bank's equity derivatives and structured products activities.
BNP Paribas has been on an acquisitions spree following the purchase of Macquarie's equity derivatives business in July 2012 in a transaction that involved more than 1,500 products being transferred to the French bank across seven exchanges. This was followed by the acquisition of Crédit Agricole's equity derivatives book in October 2013 for €12.5bn and an agreement with Rabobank Group in December 2013 over the transfer of the 98.5% stake held by Rabobank in Bank Gospodarki Żywnościowej (Bank BGŻ) to BNP Paribas for PLN4.2bn (€1bn), bringing the total liabilities assumed by the French bank in equity derivatives portfolio acquisitions to more than €295.5bn.
The RBS acquisition, says Jean-Eric Pacini, the bank's head of structured equity distribution (GECD), Europe, provided BNP Paribas with other non-tangible benefits, including the increased awareness of BNP Paribas in Northern European markets where the bank's footprint is now as strong as it is in Continental Europe.
"This has had a positive impact on our brand recognition and profile, and those markets are now familiar with who we are and are aware of our commitment to the structured products business," says Pacini.
According to Pacini, European structured product markets are all very different from each other in terms of dominant distribution channels, preferred types of wrappers, etc. "We have [...] seen how different markets have shifted their preferences, with some wrappers eating up market share and sometimes taking over the more traditional products," he says.
"In France the fund wrapper has almost disappeared in recent years while in Italy the life insurance wrapper is a fraction of what it used to be (in 2009 there was €20bn issued in the insurance space alone and three years later this was down to €2bn). At the same time the certificates business which was marginal in this market took off and sales volumes now stand at €10bn, according to Acepi."
Structured product markets, says Pacini, are a changing landscape and providers need scalability and a flexible approach to react to the different trends. "Size allows you to have a number of structuring teams who are able to effectively deliver this flexibility in the product design," he says.
In the exchange-traded space BNP Paribas also benefitted from the integration of the RBS business and it is now better positioned to tap into two major trends in the core retail structured products business.
"The first trend is digitalisation which started a couple of years ago with the emergence of mono-dealer platforms such as BNP Paribas's Smart Derivatives and will develop at some point through multi-dealer platforms," says Pacini. "The second trend seems to be the individualisation of savings, which will be particularly relevant in the life insurance and pension spaces."
According to Pacini, the third leg of the stool, the institutional space, is also a growth area where the bank is strengthening its capabilities around quantitative investment strategies and solutions to comply with upcoming regulations such as Solvency II.
"This has required and will require long-term investments supported by all our client franchises thus creating economies of scale," he says.
Pacini says that the higher costs involved in running a structured products business as a result of the regulatory overhaul triggered a period of consolidation which is still ongoing which will result in a stronger market.
"Regulation is good for the industry because it creates a level playing field and clarity for those who want to be involved and be responsible providers," he says. "But the downside is that it has resulted in significantly increased operational costs. For some players, such as BNP Paribas, these costs can be dealt with because we have a significantly sized business. However, some smaller players cannot compete and may have to exit the market."
According to Pacini, BNP Paribas is now in a position to offer the high level of service that is expected and required by clients.
"Technology is one aspect of this and it has transformed the market over the last few years," he says. "We ourselves have a very strong digital platform, SmartDerivatives. This has been achieved through sustainable investment and is only possible because we are a significantly sized player with scalability. We are not seeking short-term profitability but a long term sustainable and profitable business."
Pacini believes that the new regulation will not only get rid of the bad practices but will also provide new opportunities for growth.
"The industry has learned the lesson about suitability and most manufacturers and distributors have improved their processes to make sure the business is transparent and sustainable," he concludes. "A few years back the savings industry was set to grow between 4% and 8% as a result of the ageing population and the need for suitable products that meet the needs of those clients. After the adjustments resulting from the regulatory changes this kind of number may well remain valid."