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Cablegate: Natixis: A New French Finance National Champion

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RR RUEHAG RUEHDF RUEHIK RUEHLZ
DE RUEHFR #5424/01 2221613
ZNR UUUUU ZZH
R 101613Z AUG 06
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 0285
INFO RUEATRS/DEPT OF TREASURY WASHDC
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RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 PARIS 005424

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PASS FEDERAL RESERVE
PASS CEA
STATE FOR EB and EUR/WE
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TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER
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E.O. 12958: N/A
TAGS: EFIN ECON PGOV FR
SUBJECT: NATIXIS: A NEW FRENCH FINANCE NATIONAL CHAMPION


1. SUMMARY. The GOF has given the green light to a new joint
subsidiary between the French Caisses d'Epargne and the Banque
Populaire banking groups, creating NatIxis. With 500 billion euros
(USD 640 billion) in assets managed, NatIxis has the potential to
become a significant player in the finance and investment banking
services sector in France and throughout the rest of Europe. End
summary.

GOF approves Financial Restructuring
------------------------------------
2. On August 5, the Government Shareholding Agency ("Commission des
Participations et des Transferts") approved the transfer of a stake
held by the Caisse des Depots et Consignations (CDC), the
state-owned financial conglomerate, to the Caisse Nationale
d'Epargne (CNCE), the parent company of Caisses d'Epargne. This
approval removed a key obstacle (namely, CDC opposition) to the
formation of a joint subsidiary between two mutually-owned financial
service providers, the Caisses d'Epargne and the Banque Populaire.


3. Although the transfer did not amount to a privatization, Finance
Minister Thierry Breton had asked for its approval in order to quiet
any controversy surrounding the transaction. Caisses d'Epargne -
often called "L'Ecureuil" after its squirrel logo - initially had
been blocked in its plans to create NatIxis by opposition from CDC,
its parent company, which had special veto rights. CDC President
Francis Mayer had condemned the transaction as "imbalanced to the
detriment of the Caisse d'Epargne group, and opposed to CDC
interests as a stakeholder in the group." CDC was put off by the
change in the group's objective to be listed on Euronext, "a
complete and sudden change in its strategy," said Mayer. CDC
eventually agreed to sell its 35 percent stake in CNCE, allowing the
Caisses d'Epargne group to retain full control of CNCE, and
L'Ecureuil to separate from CDC.

4. The decisive factor for CDC was the offer by L'Ecureuil to pay
6.8 billion euros including a transfer of assets. The price
includes a 15 percent premium (when 2006 dividends are excluded)
according to Caisses d'Epargne, or a 25 percent premium (including
dividends) according to CDC, in any case higher than what the GOF
would have gotten in a regular privatization. The Commission ruled
that "the value and modalities of the transfer of assets are not
unfavorable to CDC's patrimonial interests," but nonetheless urged
vigilance when it came time to assigning final prices to assets,
particularly for the real estate stakes.

NatIxis and Natexis - Who is Who?
---------------------------------
5. The new joint subsidiary will be called "NatIxis", which may
prove confusingly similar to Natexis Banques Populaires, a
subsidiary of the Banque Populaire group. Natixis' name comes from
the first three letters of Natexis, and Ixis, the name of CNCE's
subsidiaries.

6. Natexis Banques Populaires is Banque Populaire Group's
financing, investment banking and service bank. It is listed on
Euronext, and has sites in France, Europe, America, Africa, Asia and
Oceania. Natexis's shares are held by the Banque Federale des
Banques Populaires (74.97 percent), public (16.28 percent), other
financial institutions (7.41 percent) and by employees (1.34
percent).

7. Caisses d'Epargne's subsidiaries involved in the NatIxis project
include Ixis Corporate & Investment Bank; IXIS Asset Management
Group and CIFG in the finance and investment banking sector; Credit
Foncier and CEFI in the specialist banking services sector; and
Compagnie 1818 in the private asset management.

8. CDC serves as the government's investment bank, and also
oversees tax-exempt savings funds collected by L'Ecureuil and Banque
Postale. CDC allowed L'Ecureuil to gain autonomy by selling its 35
percent stake in CNCE. As part of the transactions, CDC lost its
indirect 50 percent stake in "L'Ecureuil vie", the life insurance
subsidiary of L'Ecureuil, but will retrieve it as part of assets
given by l'Ecureuil. CDC will bring L'Ecureuil vie to insurance
company CNP, which will get full control of L'Ecureuil vie. CDC
will raise its stake in CNP from 37 percent to 40 percent.
L'Ecureuil has a 17.85 percent stake in CNP, and agreed on the
renewal of commercial agreements with CNP up to 2015.

NATIXIS: A Major Player
-----------------------
9. In March 2006, the Caisses d'Epargne and the Banque Populaire
groups agreed on the outlines of creating a new vehicle - a joint

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subsidiary - for their financial assets and investment banking
activities. The goal, to expand through combining forces, rides the
current tide of European consolidation. NatIxis will begin
operations on January 1, 2007. It will be publicly listed, but will
be jointly and equally controlled by Banque Populaire and Caisses
d'Epargne (each will retain a 34 percent share in equity and voting
rights for ten years).

10. NatIxis is designed to create a heavyweight in the financial
and investment banking services sector, while allowing its partners
to conserve their own retail banking businesses. NatIxis will have
the "critical" size needed to rival other large French banks,
notably Credit Agricole, Societe Generale and BNP Paribas, which
have established international franchises. With 500 billion euros
in assets, NatIxis will become the French leader in asset
management. Natixis will also hold the number one position in the
French employees' savings system ("epargne salariale"). Thanks to
Natexis Banques Populaires' subsidiary COFACE, which provides credit
insurance and credit management services to French companies,
NatIxis will become the number two credit insurer in Europe and the
number three in the world. NatIxis will have an estimated market
capitalization of 25 billion euros (USD 32 billion).

Comment
-------
11. NatIxis will be a strong competitor among financing and
investment banks, offering assets management, insurance and
specialized financial services in the French domestic market. It
will have the potential to develop internationally, the most likely
route for expansion for French banks. The French banking system is
already largely consolidated, with the six largest banks managing 90
percent of deposits. Among those banks, Credit Agricole, which has
just acquired a 72 percent stake in the Greek bank Empiroki, has
plans to devote 5 billion euros (USD 6.4 billion) to acquisitions
abroad by the end of 2008. BNP Paribas plans to develop in Italy
and in the United States. Societe Generale's objective is to
continue its expansion in Eastern Europe.

STAPLETON#

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