Banks take Paris to task over La Poste

French bankers are well known for exaggerating threats, especially since their apocalyptic warnings about the financial crisis at Alstom persuaded the French government to step in with support for a 3.2bn bail-out of the ailing engineering group.

So it is hardly surprising that their howls of protest about the government's plans to expand the financial services activities of La Poste, the French post office, have met more than a healthy dose of cynicism.

La Poste already offers deposits, the Livret A savings plan, life insurance and a mutual fund. However, it wants to expand into mortgages for customers who don't already have savings accounts, as well as consumer credit and household insurance, to help offset heavy losses at its struggling mail delivery business.

The banks have lobbied furiously against the proposals. Two of France's most powerful bankers – Michel Pebereau at BNP Paribas, and Daniel Bouton at Societe Generale – met Francis Mer, finance minister, last month to appeal.

Eventually, La Poste was granted permission to start offering mortgages, without the need for customers to have an existing savings plan. However, this will not start until 2005 and its requests to offer household insurance and consumer credit were rejected, with only a promise to review them again in 2006.

But even these watered-down proposals upset the banks. Mr Bouton said the reforms made no "economic sense", while Baudouin Prot, BNP chief executive, condemned them as "unnecessary and undesirable".

The French banking association has threatened to complain to the European Commission about "unfair competition" from a state-owned giant operating in an already saturated retail banking market.

La Poste has about 17,000 outlets in France, making it by far the country's biggest banking network. By expanding its product range it hopes to stem the flow of young customers to other banks as soon as they need more than just a savings plan and current account.

However, few analysts are convinced by the banks' claims that La Poste will be transformed overnight into a fierce competitor able to eat into their market share. Most think it will be years before the changes have any impact and even then they will be limited.

Christoffer Malmer, analyst at Goldman Sachs, says that the French mortgage market is already very competitive and is dominated by low-margin products from mutual banks, such as Credit Agricole and Credit Mutuel.

"These are not exactly juicy products, so it is difficult to see La Poste coming in and undercutting the others," he says.

While mortgages are important in attracting new business, Mr Malmer says the real profits are made later by cross-selling insurance or consumer loan products.

In addition, the complaints of a tough market come against a background of forecasts of rapidly rising profits at French banks in the third quarter, boosted by the bedrock of their retail banking operations.

BNP is on Wednesday expected to report a 40 per cent rise in third-quarter net profits to about 800m ($930m). The following day SocGen is expected to report a more than three-fold jump in profits to 500m, while two weeks later Credit Agricole's profits are expected to almost triple to 290m.

While the difficulties faced by online bank Egg since it launched in France last year show how tough the French market is for new entrants, the healthy profits enjoyed by established French banks from their retail banking operations are showing no signs of slowing down.

The French mortgage market grew by 9 per cent in July and August, while the lucrative consumer credit sector also accelerated at a healthy rate of almost 4 per cent.

Although the sluggish economy and rising unemployment are a worry for corporate loans, Cedric Durant des Aulnois, analyst at Lehman Brothers, says French banks have become more cautious in "cherry picking" projects.

Robin Down, analyst at Morgan Stanley, says the longer-term future of French retail banking should enjoy liberalisation of Livret A savings plans and the extra cost-cutting flexibility provided by the "age pyramid" of high staff numbers due to retire in the next decade.

The recent consolidation is also expected to improve conditions by reducing the number of competitors, with Credit Agricole acquiring Credit Lyonnais and Caisse d'Epargne merging with the commercial activities of state-owned Caisse des Depots et Consignations.

While most analysts agree the banks are over-reacting about the threat posed by La Poste, many also believe they were still right to complain loudly in the hope of winning concessions from the government in return.

Indeed, the government is understood to have agreed to dilute the special subsidy paid to La Poste for distributing Livret A savings plans – in which case maybe all that fuss was worth it after all.