La Poste Explores Bank Partnership Options

The banks say they want close ties with La Poste (F.PST) but no longer see how they can incorporate it into Eulia, the two-way alliance they set up last year. As a result, France's powerful national post office could end up looking elsewhere for the partner it needs to develop its banking business. 'Eulia has been set up with two partners. Even with just two, it's already difficult," says Alexandre de Lestrange, an analyst who follows La Poste for ratings agency Standard & Poor's. A lot of decisions have been taken, management has been appointed, teams have been put in place. It's not going to be easy to start all over again three months on.'" The article states: In an interview with French business daily Les Echos last week, La Poste chairman Martin Vial conceded that turning Eulia into a three-way partnership would be extremely difficult. When Eulia was first announced last summer, La Poste seemed a natural partner. The three groups have close ties – CDC, for example, handles billions of euros in savings collected each year by the post office. Even Finance Minister Laurent Fabius pushed for a three-way deal. But La Poste was excluded from the tie-up because, as a state-run company, it has no banking license – a severe crimp on its ability to lend money and compete directly with better-known high street banks like BNP Paribas SA (F.BNP) and Societe Generale SA (F.SGF). The three groups also fell out over the future of CNP Assurances SA (F.CNP) – a life insurer in which they together own nearly 60%. And Caisse d'Epargne, France's biggest savings bank, was worried about how to marry up its massive retail banking network with La Poste's without sparking competition concerns in Paris and Brussels. 'Charles Milhaud (the chairman of Caisse d'Epargne) has said Eulia is a closed company. He looks like he's trying to say that the shareholding structure is not open to other partners, notably of course La Poste,' said one source close to the new alliance."

Dow Jones: "'The real problem at La Poste is that it has a marvelous distribution network, but it needs to be able to offer the full range of financial products that a bank does,' says Roland Bouyer from the Confederation Francaise Democratique du Travail (CFDT), one of France's biggest trade unions. La Poste's dilemma could become more acute if, after the Spring elections, France's new government chooses to spin off the post office's banking operations into a special subsidiary – an idea that, despite opposition from the political left and some trade unionists – is gaining ground. Shortly before Christmas, an influential parliamentary committee called the idea 'the best way of guaranteeing the future' of La Poste's banking activities. It also warned that, without a partner, the activities risk 'withering away.' At that point, La Poste would need to come up with the cash to bring itself into line with solvency and capital requirements that apply to all banks in France. It doesn't have it. France's post office – the second biggest in Europe – is still EUR4 billion in debt. It shells out EUR1.8 billion a year in pension payments. And in 2000 – the last year for which figures are available – its net profit dipped by 51% to just EUR139 million – not much more than 3% of earnings at BNP Paribas, the country's largest listed bank. For the time being, Vial is playing his cards close to his chest. Last week, the La Poste chairman said 'it would be a shame not to explore other options' than Eulia. Speculation has recently linked La Poste with Dexia SA (F.DXA), the Franco-Belgian lender eagerly searching for a way into the French retail market. Dexia officials describe the speculation as 'interesting' but say there are no talks underway. Plumping for another partner like Dexia could – ultimately – see long-standing ties between La Poste and CDC and Caisse d'Epargne begin to unravel. France's post office is already more independent than it was – for example it has a special subsidiary to manage deposits in current accounts, a task it used to entrust to the government. It already derives 10% of its revenue from outside France. The next few months could see further steps in that direction. Currently, La Poste is renegotiating the four-year law that mandates the services it must provide – a window of opportunity for would-be reformers who want to further free La Poste from the government's apron strings."