Chatting with Lutz Diederichs: BNP Paribas' Ambitions in Germany's Growing Mid-Market
"Business expanse serves as our power source"
Have a seat and grab a coffee as we dive into the fireside chat with Lutz Diederichs, CEO of BNP Paribas Deutschland. We'll tackle key topics like the significance of Germany for Europe's largest bank, strategic acquisitions, and sustainable investments, among others.
So, what makes Germany so crucial for BNP Paribas, and what are the bank's aspirations here? Well, simple as can be - Germany's economy is Europe's largest, making it a no-brainer for BNP Paribas to establish a strong presence. The bank's roots run deep, having been operational in Germany since 1947. Diversification is a strength, with the bank offering a broad range of services across products, business fields, and client segments. This diversification adds a layer of stability. As for responding to the local market, BNP Paribas' decentralized structure is a perfect fit for the German mid-market. With business centers spread across major economic hubs, the bank can offer local services with specialized offerings unmatched by competitors - leasing, factoring, and fleet management in mobility.
Are German banks less diversified than BNP Paribas? In the boss's opinion, they're not as broad in their reach. Cooperations for insurance businesses are common, while BNP Paribas owns Cardif for a more extensive insurance offering. The bank is a leading player in many areas, including consumer finance, corporate investment banking, asset management, securities services, and more. When it comes to the mid-market, the talk is centered on large, internationally-oriented businesses with an annual turnover of at least €500 million. BNP Paribas intentionally forgoes the smaller end of the market, leaving it to German banks.
The recent acquisition of HSBC's private banking business was a strategic move intended to bolster the bank's market position in Germany's wealth management sector. It's a portfolio and staff deal, which means an easier integration. The goal is to break into the top players in Germany's wealth management sector by 2025.
Of course, there's always competition, and US banks have been stepping up their game in Germany. US banks have long dominated the investment banking realm, but they've also been getting into digital retail banking and asset management. BNP Paribas takes this seriously, but they're banking on their roots in the mid-market and reduced dependency on interest income. Despite tough economic times, BNP Paribas has averaged 8-9% growth yearly from 2012 to 2021, a feat that's nothing short of impressive.
Lastly, sustainability is a pillar of the bank's strategy. The bank measures success in this area by the proportion of its portfolio labeled as sustainable. BNP Paribas is one of the few banks across the globe with a higher percentage of sustainable investments than non-sustainable ones. Critics argue that the bank's involvement in oil and gas projects could be detrimental to its environmental goals. However, BNP Paribas believes in supporting companies during their transformation, which includes the financing of projects that switch to green technologies.
Are clients concerned about sustainability? You bet. Sustainability is on the same level as M&A topics for German CEOs. Clients understand that non-sustainable investments pose long-term risks, so BNP Paribas works closely with their clients to promote sustainable projects and guide them through the transformation. Sustainability and profitability aren't mutually exclusive; instead, they're interdependent in the long run.
The challenges in financing the economy are immense, particularly in areas like sustainability and infrastructure. The KfW estimates that a staggering €1 trillion will be needed in Germany alone by 2045. Given German banks' limited equity base, it's practically impossible to meet these needs through loans alone. A functional European capital market is thus essential.
The Capital Markets Union in Europe often stalls due to the lack of harmonization of legal provisions, such as insolvency law. Additionally, European markets are more fragmented and less liquid than those in the US, acting as a deterrent for investors. A quick, implementable step to help the situation would be to simplify securitizations to ease bank balance sheets and enhance new loan availability.
Securitizations are considered key to relieving bank balance sheets and fostering the Capital Markets Union. If you're wondering about their significance, securitizations are an essential first step toward the Capital Markets Union because they can be implemented relatively easily. However, it's a regulatory misalignment that it's more attractive today for banks to keep loans on their balance sheets rather than securitizing them and placing them on the capital market. To alleviate bank balance sheets and free up funds for new loans, we need to reduce capital requirements for securitizations. A greater use of securitizations would contribute significantly to strengthening the European capital market.
The chat was conducted by Wolf Brandes.
Key Insights:
- BNP Paribas is diving headfirst into Germany's upcoming large-scale investment plan, which focuses on infrastructure, the low-carbon transition, and the defense sector.
- The bank is working to differentiate itself from traditional mid-market banks like Commerzbank through its diversified model, comprehensive product offering, the originate-to-distribute lending model, cost savings, and efficiency gains.
- Sustainability is a priority for both the bank and its clients, with BNP Paribas measuring success in this area by the proportion of its portfolio labeled as sustainable. Critics argue that the bank's involvement in oil and gas projects contradicts its environmental goals, but the bank sees itself as a crucial partner in companies' transformations.
- BNP Paribas is aggressively Investing in Germany's large-scale infrastructure, low-carbon transition, and defense sector projects, seeking to distinguish itself from traditional mid-market banks like Commerzbank.
- Sustainability is a critical aspect of both BNP Paribas' business strategy and its clients' concerns, with the bank striving to grow its proportion of sustainable investments and guide clients towards sustainable projects.
