Bank Mergers: Implications and Legal Considerations

National Bank Mergers: Implications and Legal Considerations: –

Bank mergers Merger can be defined pictorially. It is an operation which “is understood by two societies as by two rivers which unite their waters, one keeping its name and arising from the other, or both merging to form a river exclusively formed of two waters. , a river which henceforth will have a new name”. Thus, in legal terms, two or more companies proceed to a unification of assets in order to no longer form a single company. Article 1844-4 of the Civil Code mentions two types of merger. It is about the fusion by absorption according to which a company is  absorbed  by another company, the first disappearing.The operation may also consist of the creation of a new company which will receive the assets of the companies participating in the operation, these companies themselves disappearing. Mergers of independent legal entities can also be carried out by way of acquisition of shares without merger between the entities concerned, which remain legally distinct. This last operation is a simple recovery.
2. – These two notions refer to concentration, even if not all mergers are concentrations. In common parlance, the term “concentration” is defined as the action of converging, coming together or coming together in one place. This general definition can be compared to the conception of economists and jurists.In the broad sense, concentration is defined there as any legal operation tending to create unity of decision-making between companies, with the aim of increasing their economic power. In the strict sense, these are legal operations tending to create a unity of decision-making between the companies either by the creation of structural links which modify the legal identity of the companies concerned,

3. – These definitions are applicable to bank mergers and acquisitions. However, only transactions involving credit institutions or financial institutions are so qualified. The expression covers several situations: purely banking concentrations, financial concentrations, banking and financial concentrations, but also mainly banking or financial concentrations.

4. – While these have similarities with mergers carried out in other sectors of the economy, the obstacles to carrying out such operations are much more numerous and complex. Undoubtedly, they pose specific problems related to their institutional conditions, their interactions with monetary policy issues, and the prudential requirements related in particular to the existence of systemic risk. The essential reason for this situation lies in the fact that the banking system is specific. In fact, the banks drain savings and allocate loans according to choices or assessment criteria that are decisive for the orientation of the economy. To the extent that these are custodians of funds belonging to others, the banking system is not only the main holder of liquidity but also the main provider of payment services. Therefore, it forms a vital part of most economic transactions. This permeates the economy so much that it influences its functioning in such a way that no other branch of activity could correspond to it. It is thus traditionally considered by the French State as strategic. It is therefore subject to a specific professional law organizing its proper functioning. It is thus traditionally considered by the French State as strategic. 

8. – Originally, they were subject to common law, but following the resounding crisis of the 1930s, specific regulations were imposed on them. This reorganized the banking profession and created a system of public control. These provisions were justified by a desire to protect depositors against any failure of institutions. However, in essence, behind the state justifications, it is the whole sector that the law has organized with the aim of controlling this essential cog in the economy. The French banking system has thus for a long time essentially come under the public authority, both in terms of capital holding and in terms of setting the rules for the operation of the market.

9. – The supervision of banks was instituted by the laws of 13 and 14/06/1941. This structure subsequently underwent modifications. The State nationalized by the law of 02/12/1945 the four national credit establishments. Finally, at the beginning of the 1980s, he also nationalized thirty-six banks to extend his control over 75% of the credits distributed with the idea of ​​controlling this essential cog in the economy. The technique used has always been the same: the shares representing the capital of the nationalized companies concerned were transferred to the State in full ownership, with the exception of shares held by legal persons already belonging to the public sector or intended to enter it. by right. All major banks have thus come under state control.

European banking mergers and acquisitions: regulatory framework and challenges: –

State interventions in the banking system were therefore frequent. Measures relating to the banking environment have been adopted, such as the reform of company law, the creation of the Stock Exchange Commission, the participation of employees to accustom the working classes to shareholding and thus contribute to the development of the walk. financial. Added to this are the rules directly intended to reshape the banking system and to concentrate it: let us recall the decrees of 25/01/1966 and 23/12/1966 decompartmentalising investment and deposit banks, the decree of 26/ 05/1966 merger of the Banque Nationale pour le Commerce et l’Industrie and the Comptoir National d’Escompte de Paris to form the Banque Nationale de Paris. This operation initiated by the State constitutes the first large-scale French banking concentration. However,

10. – From the middle of the 1980s, the government thus organized a liberalization leaving more room for free competition within the framework of the banking law of 24/01/1984. The provisions of this law have therefore established a legal environment favorable to banking concentrations. This is the implicit objective of the “three Ds: Disintermediation, Deregulation, Decompartmentalization”.

With regard to intermediation, the main banking function consists in creating money by granting loans, then collecting it from depositors and savers. One of the essential changes of the 1970s and 1980s was the considerable development of disintermediation by issuing mainly shares and bonds subscribed either directly or indirectly by savers or investors. Traditional banking intermediation, within the framework of retail banking, has decreased. On the other hand, securities transactions occupy a growing place in banks’ balance sheets. “Financial disintermediation thus tends to increase competition between banks and markets. Due to increased market competition,
Regarding deregulation, two essential measures have lifted the constraints weighing on French banks. The first concerns the freedom to open counters, which has favored the growth of banks. The principle of prior authorization issued by the Credit Institutions Committee, established in 1982, was repealed in 1986. The second concerns the abolition of the credit framework which favored the development of competition and the process of concentration. Finally, the decompartmentalization aimed to allow the integration of financial markets as well as to establish a healthy competition between the main protagonists of the financial scene. This decompartmentalization is indisputable, because until the arrival of liberal measures, the French system was characterized by a double mosaic of credits and institutions which preserved monopolies. However,

11. – The first innovation of the law of 01/24/1984 concerned the change in the institutional framework. Thus, article 1 of the law, inserted in the Monetary and Financial Code in article L. 311-1, defines not the notion of bank, but of credit institution.

Before 1984, there were more than thirty different statutes of credit establishments often giving their beneficiaries a monopoly on the exercise of certain activities, often accompanied by fiscal and financial advantages. The law partially unifies banking statutes and recognizes the universal vocation of credit institutions. This measure favored the process of concentration by limiting the number of existing statutes. This relative trivialization of statutes was of paramount importance for the organization of the profession. Indeed, once they emerged from a special legal regime, the establishments concerned regained their freedom of organization and were able to envisage mergers that had been difficult to achieve until then.

However, despite this unification, the law does not have a totally universal vocation. It is a compromise law that respects the various interests involved. Even if a single legal framework has been established, this does not mean that the statutory specificities of cooperative or mutual banks have disappeared. This necessarily has an impact on the concentration of the banking system.

Therefore, it is not forbidden to question the justifications for maintaining several statuses. Their abolition would constitute an additional factor of concentration which would stimulate the mergers necessary to allow the constitution of groups of a size adapted to the dimension of the European market.

– Municipal credit cooperatives: although they now have a monopoly on pawnbroking, this activity has become marginal in favor of other forms of consumer loans that they grant.
BR> These three categories of establishments can carry out all banking operations, but “within respect of the limitations resulting from the legislative and regulatory texts which govern them”.

The law is even more restrictive for the fourth and fifth categories. They may not receive sight deposits from the public or those with a term of less than two years.

– Financial companies may only carry out banking operations resulting either from the authorization decision which concerns them, or from the legislative and regulatory provisions specific to them. They bring together a wide range of establishments including building societies and leasing companies. The latter grant a particular form of credit, called leasing or finance lease, by buying goods that are then “leased” to customers for a fixed period, the latter having at the end of the contract the possibility of buying the goods at their residual value. .

– Specialized financial establishments are specialized organizations to which the State has entrusted a particular mission of public interest. Their operations must be linked to this mission. They notably include Crédit Foncier de France. It is also the Société des Bourses Françaises which manages the French securities market. They welcomed the Development Bank for Small and Medium Enterprises, resulting from the merger between Crédit d’Equipement des Petites et Moyennes Entreprises and the Société Française d’Assurance sur Capital à Risque des PME. Its mission is to promote access for small and medium-sized enterprises to bank financing and to help them strengthen their financial structure. In addition, they include the Regional Development Companies, which aim to promote, through equity investments, the development of medium-sized companies. The latter entered into crisis in the 1990s. Thus, they could not maintain their independence. The regional development companies Champex, Expanso, Tofinso, Solder and Sodero have thus been taken over by savings banks. Sodecco was acquired by Banque Régionale de l’Ouest. The Nord-Pas de Calais Territorial Development Company has approached Crédit Lyonnais. SADE took control of Société de développement régional du Sud-Est, then was the subject of a public takeover bid by Banque Générale du Luxembourg. Finally, the Regional Development Company of Brittany has approached the BDPME. The latter entered into crisis in the 1990s. Thus, they could not maintain their independence. The regional development companies Champex, Expanso, Tofinso, Solder and Sodero have thus been taken over by savings banks. was then the subject of a public takeover bid by Banque Générale du Luxembourg. Finally, the Regional Development Company of Brittany has approached the BDPME. was then the subject of a public takeover bid by Banque Générale du Luxembourg. Finally, the Regional Development Company of Brittany has approached the BDPME. was then the subject of a public takeover bid by Banque Générale du Luxembourg. Finally, the Regional Development Company of Brittany has approached the BDPME. was then the subject of a public takeover bid by Banque Générale du Luxembourg. Finally, the Regional Development Company of Brittany has approached the BDPME. was then the subject of a public takeover bid by Banque Générale du Luxembourg. Finally, the Regional Development Company of Brittany has approached the BDPME.

13. – It should be noted that the current state of banking law is not solely the work of the law of 24/01/1984. During the years that followed, various texts were adopted, helping to reinforce the phenomenon of concentration. First of all, several types of coefficients have been planned in order to guarantee the liquidity, the solvency as well as the balance of the financial structure of credit institutions.

Most of the ratios were based on the own funds of credit institutions. To ensure the uniformity of solutions in Europe, a directive on own funds of 17/04/1989, amended on 03/12/1991 and 16/03/1992, undertook to define this concept. It is mainly inspired by the rules enacted under the aegis of the Banking Supervision Committee which sits in Basel at the Bank for International Settlements. Its content was introduced in France by the Regulation of the Banking Regulation Committee No. 90-02 of 02/23/1990, amended several times.

This community directive was supplemented by a directive of 18/12/1989 relating to a solvency ratio for credit institutions, which was transposed in France by Regulation no. 91-05 of 15/02/1991. Then, the community directive of 21/12/1992 on the monitoring and control of large exposures of credit institutions was transposed in France by Regulation No. 93-05 of 21/12/1993. Finally, the Community directive of 03/15/1993 on the capital adequacy of investment firms and credit institutions has drawn up common rules concerning market risks. It was transposed by Banking Regulation Committee Regulations No. 95-02 and No. 95-05 of 07/21/1995, which amended Regulation No. 91-05.

These restrictive ratios have led to reconciliations between insurers and banks. Indeed, the latter needed considerable liquidity from insurers. These ratios have also generated backing of credit institutions, which do not have sufficient capital, with larger groups.

Furthermore, the second banking directive liberalized banking activities in the European Union, in particular by establishing a single banking license in all member countries. It also made it possible to standardize prudential rules between Member States, particularly in terms of minimum capital.

In addition, EEC Directive No. 93/22 adopted on 05/10/1993 facilitated the freedom to provide services and the freedom of establishment on the financial markets of the European Union for any provider of investment services having its registered office or its effective management in one of the Member States. To this end, a so-called “European passport” system has been introduced. This does not imply complete harmonization of the standards relating to the conditions of access to the activity of investment service provider. It is based on the principle of recognition of the approvals granted by the authorities of the Member State of origin. The directive sets out a few minimum harmonization conditions relating to the granting of the European passport, but the Member State of origin remains free to enact stricter rules.

Consequently, the law of 1984 was modified by law n° 92-665 of 16/07/1992 transposing the EEC directive of 15/12/1989. This laid down the principle of freedom of establishment, the provision of services in the Member States of the community, the mutual recognition of approvals issued by the latter and the principle of monitoring by the country of origin. The most significant novelty thus resides in the single license system: the approval granted by the State of the head office is valid once and for all throughout the Community. This creation of a single banking market was obviously the primary cause of concentration since credit institutions were able to compete freely throughout Europe.

Finally, EEC directive n° 93/22 of 05/10/1993 was transposed into French law by law n° 96-597 of 07/02/1996. The latter adopts a new legal structure based on trades and no longer on markets. It consecrates the unity of the financial market while maintaining the specificity of financial intermediation in relation to credit businesses.

14. – Ultimately, the banking law as well as the texts drawn up subsequently allowed deregulation, harmonization of prudential rules and logically an activation of competition between credit institutions. This constituted a factor of concentration in the banking system. In particular, Community law has been at the origin of a large number of developments resulting in the acceleration of mergers.

15. – Against this backdrop, the State had to privatize the banks. This process also helped to increase the concentration of the banking system. Having returned to the private sector, the main institutions regained their freedom of initiative and were able to engage in concentrations that their membership of the public sector had long hampered. The transfer of banks from the public to the private sector took place in three main stages. Privatizations between 1986 and 1988 involved 73 banks, mainly Banque du Bâtiment et des Travaux Publics, Banque Industrielle et Immobilière Privée, Caisse Nationale du Crédit Agricole, Compagnie Financière de Paribas, Compagnie Financière de Suez, Compagnie Financière Crédit Commercial de France and Société Générale. After a five-year hiatus, corresponding to the “ni-ni” period, the privatization program resumed in 1993. Privatizations in 1993 and 1994 included BNP and Banque Marseillaise de Crédit.

Since then, there have been further transfers from the public to the private sector: in 1995, BFCE and Crédit Local de France; in 1996, two banks in the Renault group and three subsidiaries of Crédit Lyonnais; in 1997, a subsidiary of the GAN group; in 1998, other subsidiaries of GAN, in particular the CIC group, as well as Société Marseillaise de Crédit and its subsidiaries; in 1999, Crédit Lyonnais; and finally, in 2001, Banque Hervet. Privatisations in 1993 and 1994 included BNP and Banque Marseillaise de Crédit. Further transfers from the public to the private sector have since taken place: in 1995 they concerned BFCE and Crédit Local de France, in 1996 two banks in the Renault group and three subsidiaries of Crédit Lyonnais, in 1997 a subsidiary of the GAN group, in 1998 the other subsidiaries of GAN, in particular the CIC group as well as Société Marseillaise de Crédit and its subsidiaries, in 1999 Crédit Lyonnais and finally in 2001 Banque Hervet. The privatisations of 1993 and 1994 included BNP and Banque Marseillaise de Crédit.

18. – This last element unquestionably reveals that the legal sources of the concentration are supplemented by economic and managerial causes.

B/ The economic and managerial causes of the banking concentration process

19. – Competition leads to increased competition between credit institutions, which leads to numerous concentrations. Thus, for example, competition in the retail banking business tends to reduce margins and leads players to seek to increase the products distributed: savings products, insurance, etc. Access to these activities requires a matching strategy. Concentrations have therefore been initiated, particularly with insurance companies. Moreover, this competition must increasingly also be exercised against non-bank players. Let us quote the insurance companies which entered in force in the banking sector, in particular by the repurchase of investment banks. In addition, companies in the distribution sector have also entered the banking market.

From an economic point of view, the growth in the size of companies is almost the only answer to the needs of this new competition. We are therefore witnessing the globalization of the banking system and a strengthening of power and ownership in the hands of a minority. Economic power is concentrated under the guise of creating value. This race for size seems inevitable because of the criteria of profitability.

20. – Indeed, the concentration is likely to lead to the achievement of synergies and complementarities between the related entities. These synergies include both those relating to the businesses and those relating to the distribution system itself. The first can come either from the complementarity of customer and/or product portfolios, or from the pooling of central services, logistical means, but also back-offices or know-how. The seconds can, for example, materialize by completing a local network by extension. From then on, emphasis was placed on the advantages conferred by large size: easy financing, economies of scale, economies of scope, productivity gains, risky investment opportunities.

21. – However, these advantages must be put into perspective in the banking system because it has not been proven that there is a relationship between the size of a credit institution and its profitability, except in retail banking, especially more than the costs are very disparate from one bank to another. Thus, the comparison of the list of the 100 first world banks with that of the 100 most profitable, seems to prove the non-existence of a relation between the size and the efficiency since only 9 banks of the first list appear on the second. Professor Alain Buzelay acknowledges the existence of a very weakly positive correlation between the size of banking organizations and their profitability. Alfred Steinherr’s work even shows a negative correlation for the largest banks in at least six Member States. The “optimal size” depends on the trade, the cost structure and the market power it confers. Some professions are actually exercised at the departmental and regional level. Others are profitable only at the national level, others finally need to deploy at the international level. Thus, the economic benefits of these strategies are, to date, widely debated: the size effect has not necessarily brought more economies of scale or risk diversification. In some cases, the uncontrolled development of activity has even led to a considerable accumulation of risks; the importance of own funds and their return may have posed problems of reuse which may have encouraged banks to develop prudential arbitrage strategies. Finally, Others are profitable only at the national level, others finally need to deploy at the international level. Thus, the economic benefits of these strategies are, to date, widely debated: the size effect has not necessarily brought more economies of scale or risk diversification. In some cases, the uncontrolled development of activity has even led to a considerable accumulation of risks; the importance of own funds and their return may have posed problems of reuse which may have encouraged banks to develop prudential arbitrage strategies. Finally, others are only profitable at the national level, others finally need to deploy at the international level. Thus, the economic benefits of these strategies are, to date, globally highly debated: the size effect did not necessarily bring more economies of scale or risk diversification. In some cases, the uncontrolled development of activity has even led to a considerable accumulation of risks; the importance of own funds and their return may have posed problems of reuse which may have encouraged banks to develop prudential arbitrage strategies. Finally, the uncontrolled development of the activity has even led to a considerable accumulation of risks; the importance of own funds and their return may have posed problems of reuse which may have encouraged banks to develop prudential arbitrage strategies. Finally, the uncontrolled development of the activity has even led to a considerable accumulation of risks; the importance of own funds and their return may have posed problems of reuse which may have encouraged banks to develop prudential arbitrage strategies. Finally,

22. – The acceleration of the process of banking concentration in Europe is therefore explained by the conjunction of several other phenomena.

23. – First of all, there is banking overcapacity, which is one of the causes of concentration. Correlatively, there does not seem to be any more room for a new banking network either in France or in the European Union, in particular because of the very high banking rate. This leaves very little room for newcomers. Thus, it is a question of buying networks of counters and banks of a certain size already established on the markets. The explanation of concentrations by the search for market power therefore constitutes a much more fruitful working hypothesis. Banks are concentrating because they want to defend or even extend their positions on their domestic market against national competitors who are concentrating, but also against potential foreign competitors.

25. – The acceleration of consolidation operations can also result from a defensive reaction by certain players in the face of competitors’ initiatives. These micro-economic behaviors, called “Nash equilibrium” in game theory, lead an agent to adopt the response that he deems the most credible to his competitor’s strategy to maintain or preserve his position. In this respect, certain reconciliations of the banking system carried out recently in Europe seem to have been initiated more in response to a modification of the existing balances than with the prospect of achieving a strong initial objective.

26. – Mimetic behaviors, like reactive strategies, have their own economic rationality, but which is not necessarily based on the creation of value: in the first case, the reduction of information asymmetries between competitors on the market. a fairly homogeneous whole, as is the case in the banking system, can incite them to mimetic-type reactions; in the second case, it is above all the credibility of the reaction that takes precedence.

27. – The race for concentration can also be explained by the desire of bank managers to be “predators” rather than risk becoming the target of an unfriendly takeover. From this point of view, the average size of French banks reveals the risk of takeovers by larger foreign institutions. It should be noted that the search for power is in itself a non-negligible concentration factor. For example, in 1999, the stock market battle between BNP and Société Générale demonstrated that beyond economic reasons, there were also questions of the pre-eminence of individuals and the prestige of management teams.

28. – Moreover, shareholder pressures also play a determining role in banking concentrations. These appear as a response to the demand for shareholder returns. Indeed, the growing importance of institutional investors in the capital of credit institutions naturally leads the managers of the latter to orient their management objectives towards shareholder value. The profitability objectives requested reach the rate of return on equity of 15%. Faced with this demanding shareholder pressure, the banks first seek to respond to it by striving to develop their internal performance and by accelerating their growth. But the potential margin for internal growth quickly reaches its limits: indeed, average productivity gains generally oscillate between 2 and 5% per year; as for the overall business growth, it is about 3% per year in the domestic market. Maintaining a rate of return above 10% therefore requires recourse to external growth.

29. – In addition, the single market and the introduction of the euro have been decisive in the metamorphosis of the sector. They have transformed national markets into a pan-European market. The European Commission has estimated that: “(…) the effects of the euro will undoubtedly be felt in a large number of sectors, particularly financial services (…)”. Ultimately, the advent of the euro has acted as a detonator with even greater force than the experts had anticipated. It eliminates exchange rate risk within the eurozone. In addition, it provides a common currency for asset management. Finally, the fees charged by credit institutions are also expressed in the same currency throughout Europe. Product standardisation and price transparency are therefore encouraged. This increased competition

31. – Finally, mergers are part of a context of increasing globalization of financial markets and technological progress linked to the development of new channels of distance marketing and negotiation. There are indeed high-tech sectors which are globalized from the outset: electronic components, IT, aeronautics. Some more traditional sectors are in the process of globalisation: the automobile industry, the tire industry, as many client companies that the banks must support in their race to global size if they wish not to lose them. As for the financial industry itself, it is becoming global, as activity on the financial markets can only be considered on a global scale. It is certain that globalization constitutes a factor of concentration. Initially, national operators are concentrating. In a second period, they are concentrated at European level. Finally, in a third step, they should focus globally. National rivers should flow into a European river and then into a global banking and financial ocean. However, the current situation seems stuck between the first phase and the second.

II/ The contemporary situation of the movement of banking concentration

32. – A movement of concentration of the banking systems of all the States of Europe can be noted (A). As regards the movement of cross-border concentration, this is having difficulty developing (B).

A/ The movement towards concentration of banking systems in the States of Europe

33. – It seems that the concentration process got off to a moderate start in France.

34. – On the one hand, as we have already specified, there are still many laws in French banking law. This theoretically limits the concentration of mutual banks. Thus, the rule according to which they cannot pay in securities, in particular the acquisition of other establishments, continues to apply. This penalizes the development of the mutualist sector which, paradoxically, has nevertheless managed to concentrate. Note the concentration of Crédit Agricole with Indosuez as well as Sofinco, the concentration between Banque Populaire and Natexis, as well as the takeover of CIC by Crédit Mutuel. However, the risk remains for the mutualist sector of not succeeding in acquiring a European dimension.

35. – On the other hand, the French banks, despite the improvement in their results, largely due to the improvement in the economic situation, are still suffering from insufficient profits from their domestic activity, as evidenced by their relative weakness in terms of return on equity on an international scale. This may also be due to the management of the Crédit Lyonnais disaster and to a whole series of bankruptcies of banks or smaller companies which have placed a very heavy burden on the public community and the large private groups which find themselves considerably weakened. The Suez group and the company Paribas, for example, had to digest the abuses they had caused in the field of real estate. Traditional deposit banks, such as BNP or Société Générale, also had to deal with the mistakes they had made in lending to small and medium-sized enterprises. This placed France, with regard to the concentration of the banking system, in a middle position compared to the other Member States of the European Union.

36. – However, between 01/01/1987 and 31/12/2001, the total number of credit institutions established in France nevertheless decreased significantly, from 2152 in 1987 to 1837 in 1991, to 1608 in 1994 , to 1209 in 1998, to 1085 in 2000, to 1035 in 2001 and to 975 in 2002. The drop was 5% in 1998 and 2000 and, in fourteen years, 51.9%. All categories of establishments are affected by this change. Thus, the number of AFB banks dropped from 412 in 1991 to 386 at the end of 1997 and 359 at the end of 1998. “. Indeed, from 1985 to 1998, 1277 merger operations were recorded and more than 900 takeovers by new shareholders.

37. – To cope with the rise in competition and the fall in margins, the networks have undertaken rationalization programs aimed at creating entities of sufficient size. This search for a critical mass has led the mutualist groups to carry out numerous mergers between affiliated entities.
The most notable action is that carried out by the Caisses d’Epargne et de Prévoyance group. Benefiting, with the Caisse Nationale d’Epargne, from the monopoly of the livret A and being narrowly specialized in housing and community loans, they had not felt the need to adapt their organization. Still numbering 468 at the end of 1984, they had, for the most part, only a radius of action limited to one town and a few neighboring towns. They then adopted a regrouping plan which, in successive stages, reduced their number to 186 in 1990, to 35 in 1993 and then to 34 in 2000.

44. – European banks will have to merge and the legal system will have to offer them the means to do so, “it is a question of rationality”. Consequently, the consolidation of national banking systems, the harmonization of rules of law and the control of concentrations should constitute a prerequisite for profound transformations at European level.

45. – According to the European Banking Federation, there are 2,955 commercial banks in Western Europe with total assets of 9,144 billion euros, operating through 99,456 branches and subsidiaries and employing 1.84 million people. In France, the economic weight of the banking system is also considerable and decisive. It employs 423,798 people, processes €3.4 billion in payments by cheque, card or transfer and manages the bulk of credit to the economy, totalling €1,176.7 billion. The balance of this structure and its stability in the medium term will inevitably be upset, with a redistribution of market shares and a reshuffling of the balance of power that will result in a much smaller number of entities in Europe. The figures are revealing. There were 12,500 banking institutions in Europe in 1990. By 2000, only 8,000 remained. In 1998 and 1999, 188 capital transactions involved European banks. The amount of assets exchanged supports the thesis that these transactions are increasingly colossal. The number of mergers and acquisitions involving European banks and worth more than FRF 500 million rose from 54 in 1994 to 98 in 1998. In 1994, FRF 109 billion were exchanged, compared with FRF 710 billion in 1998 and FRF 923 billion in 1999.

48. – The purpose of the law is therefore in particular to prevent systemic risk specific to the banking system. This generates a specific legal treatment of banking concentrations. This specificity results in a more in-depth control than that applied to other economic sectors. This additional control is governed by banking law.

49. – A prior authorization regime for banking concentrations is organized by Article L. 611-1 of the Monetary and Financial Code. The latter empowers the Minister responsible for the economy to set the conditions under which direct or indirect holdings may be taken, extended or transferred in credit institutions and the conditions allowing these establishments to take holdings. Regulation No. 96-16 of 12/20/1996 of the Banking and Financial Regulation Committee thus provided for the prior authorization of any major change in the composition of capital contributors in order to ensure the company’s financial soundness. .

50. – Moreover, the specificity of the legal understanding of banking concentrations is materialized by the delicate coordination, even the conflicts between, on the one hand, company law, securities law and, on the other hand, the law banking. Bank mergers do not only challenge these three particular rights. They also lead to the meeting of these branches with common law, which is inevitable in the French legal order where special rights cannot totally drive out fundamental private law.

51. – For example, a conflict between banking law and contract law cannot be avoided. Indeed, on the basis of contract law, the parties are free to acquire and sell their shares in a company. However, the CECEI submits the authorization to take a stake in a bank to an agreement between the banks.

52. – Similarly, the conflict between company law and banking law is obvious. Indeed, company law defines the notion of control of a company. However, banking law does not refer to the definition of article L. 233-3 of the Commercial Code.

53. – Finally, the conflict between banking law and securities law is obvious. The operation is subject to the control of banking law, which ensures the proper functioning of the banking system and the security of customers. In particular, it provides for the conditions for authorizing equity investments in banks. Stock market law, for its part, acts in favor of the proper functioning of financial markets. It provides for the conditions of admissibility of public offers and their conduct. The meeting of these two rights generates a conflict of special rights.

54. – Thus, the major problem is that of the articulation of the different branches of law. Indeed, the implementation of banking law is opposed to many legal rules from other branches of law. The law applicable to banking concentrations therefore reveals a certain number of uncertainties which have been partly removed by the legislator or which should be removed.

55. – Ultimately, the specific nature of banking requires the law to be adapted. It would therefore be appropriate to consider the emergence of a banking concentration law. However, this is a delicate exercise for two reasons. On the one hand, the law applicable to banking mergers is only occasionally specific. More specifically, it seems that in some cases the specific nature of banking is taken into account in merger law, while in other cases “ordinary” merger law applies in full. On the other hand, the foundations of this system are scattered in several branches of law. Banking concentration has as many expressions as it has disciplines. However, the legal disciplines involved are numerous: contract law, company law, privatisation law, banking law, financial market law, competition law, securities law and labour law. The dynamics imposed by banking concentration crystallise the guidelines that form the backbone of this legal system. In the absence of an exhaustive legal system, it draws on different legal disciplines to establish the founding principles of its own system. This presupposes a set of rules and controls borrowed from the legal disciplines concerned, but also a method of resolving conflicts arising from the clash of the multiple provisions involved.

The dynamics imposed by banking concentration crystallise the guidelines that form the backbone of this legal system. In the absence of an exhaustive legal system, it draws on various legal disciplines to establish the founding principles of its own system. This presupposes a set of rules and controls borrowed from the legal disciplines concerned, but also a method of resolution adapted to the conflicts arising from the clash of the multiple provisions involved. The dynamics imposed by banking concentration crystallise the guidelines that form the backbone of this legal system. In the absence of an exhaustive legal system, it draws on various legal disciplines to establish the founding principles of its own system. This presupposes a set of rules and controls borrowed from the legal disciplines concerned, but also a method of resolution adapted to the conflicts arising from the clash of the multiple provisions in question. This presupposes a set of rules and controls borrowed from the legal disciplines concerned, but also a method of resolution adapted to the conflicts arising from the clash of the multiple provisions involved. it draws on different legal disciplines for the founding principles of its own system.

57. – The solution certainly lies in better interpenetration of the branches of law within the judicial system. This would, in our opinion, reduce the divergences between the different branches of law which have unifying objectives. Banking concentration would constitute a legal concept bridging several legal disciplines, bringing them together and going beyond their autonomy. This would allow it to be subject to a unitary legal regime. This argument militates for an interdisciplinarity internal to the law but also external.

B/ Interdisciplinary understanding of the banking concentration process

58. – The multidimensional nature of the phenomenon of banking concentration does not seem to lend itself to an analysis based on a single discipline. Thus, a legal approach to the movement implies a certain openness. It is therefore preferable to try to adopt an interdisciplinary method. This will be all the more reliable if its field of action is concretely defined.

Multidisciplinarity is topical in legal sciences. Mr. Claude Champaud affirms that “unless we persevere in a purely normative, immanent and quasi-biblical conception of law, we must consider the legal rule as the result of economic, social, political and cultural forces which are exercised at a given moment” .

Mr. Gérard Farjat, another precursor of economic law, also strongly called for reasoning based on the confrontation of several disciplines. He recommended in particular for the specialist in economic law, in addition to legal and economic approaches, the use of comparative methods. According to this author, developments in economic law are often underpinned by comparisons between formal and substantive legal structures. However, Gérard Farjat was led to point out one of the unavoidable limits of the generalist approach, the risk of knowing only superficially each notion studied without completely dominating the area covered. To avoid this pitfall, the author recommends teamwork with specialists in each discipline.

For example, company agreements are a source of private law. In many concentrations, banks find solutions through social agreements on employment. The latter highlight a decentralization of the law. They make the company the privileged place for the production of law. They allow an adaptation, a creation of rules corresponding to the specific needs of the bank during its concentration. Moreover, the practices and rules established in the companies and formalized in the agreements have the effect either of being taken into account and ratified by the law, or of rendering certain standards “ineffective”.

Mixed sources of law also challenge the traditional distinction between public and private law. We are talking here about independent administrative authorities. They are at the intersection of public and private powers. Their creation makes it possible to overcome a contradiction between the need for economic intervention by the State linked to concentration and the principle of separation of political power and economic power. The creation of independent administrative authorities makes it possible to carry out a public policy which does not depend on a ministerial department. They are the result of state action and market forces. They thus make it possible to reconcile public policies and market policies.

60. – It will then be necessary to apply external interdisciplinarity. The task is then delicate because the lawyer must integrate extra-legal data into his reasoning. It is a question of appealing to notions of economy, finance, management and politics.

61. – Ultimately, it will be a matter of determining whether there is a need for the law to take into consideration the economic specificity of banking activities. In other words, should banking concentrations be subject to specific legal treatment? More precisely, in which hypothesis is the law of concentration forced to take into account the banking specificity?

62. – It is therefore essential to seek the principle which justifies the intervention of provisions specific to the banking system. These constitute a source of vigor by inspiring confidence in the clientele. However, excessive or inappropriate regulation is harmful because it constitutes an obstacle to restructuring. Thus, it is important to find a compromise between the prudential rules which favor the sector by protecting the stability of its structure and the excessive provisions which are harmful to it.

63. – Our hypothesis is to demonstrate that the existence of banking specificities is only consistent when it comes to protecting the banking and financial system. Logically, when the protection of the latter is no longer concerned, the “common” merger law should fully apply. A legal consecration of banking specificity will therefore be demonstrated in the context of the protection of the banking and financial system (1st part). In line with this reasoning, a gradual decline in banking specificity may be observed in the absence of any need to protect the system (2nd part).

First part: The legal consecration of banking and financial specificity

64. – Bank mergers have similarities with mergers carried out in other sectors of the economy, but the obstacles to carrying out such operations are much more numerous and complex. Indeed, they pose specific problems related to their institutional conditions, their interactions with the stakes of monetary policy and the prudential requirements related in particular to the existence of a systemic risk. Thus, the great originality of banking concentrations lies in the existence of authorities responsible for monitoring credit institutions, which means that the principle in the banking sector is not total freedom of restructuring but controlled freedom. The main objective is to control the new composition of the shareholding,

65. – Subsequently, certain provisions of the banking law of 24/01/1984 lead to a concentration derogating from company law. In fact, in the event that a credit institution undermines the security of depositors, the Commission Bancaire has the option of “bringing the matter to the Tribunal de Grande Instance so that (…) the sale of shares held by one or more de jure or de facto shareholders. The court may also order the transfer of all shares in the establishment. The forced sale is therefore here an instrument of concentration with the objective of protecting the entire banking system. Admittedly, the possibility of a forced sale of shares may recall that of Article L. 621-59 of the Commercial Code, that the Commercial Court may order such an expropriation when the survival of the company so requires. But under the terms of the banking law, the transfer in question can be prescribed even outside the framework of collective proceedings. For the sake of symmetry, the central bodies of the mutualist and cooperative networks also have the option, when the financial situation of the establishments concerned justifies it, of deciding to merge two or more of these affiliated establishments as well as the whole or transfer of their commercial property. . It is to make litter of company law, excluding any decision of the shareholders’ meeting. the transfer in question may be time-barred even outside the framework of collective proceedings. For the sake of symmetry, the central bodies of the mutualist and cooperative networks also have the possibility, when the financial situation of the establishments concerned justifies it, of deciding to merge two or more of these affiliated establishments as well as the total or partial transfer of their business assets. It is to make litter of company law, excluding any decision of the shareholders’ meeting. the transfer in question may be time-barred even outside the framework of collective proceedings. For the sake of symmetry, the central bodies of the mutualist and cooperative networks also have the option, when the financial situation of the establishments concerned justifies it, of deciding to merge two or more of these affiliated establishments as well as the whole or transfer of their commercial property. . It is to make litter of company law, excluding any decision of the shareholders’ meeting. It is to make litter of company law, excluding any decision of the shareholders’ meeting. the transfer in question may be time-barred even outside the framework of collective proceedings. For the sake of symmetry, the central bodies of the mutualist and cooperative networks also have the option, when the financial situation of the establishments concerned justifies it, of deciding to merge two or more of these affiliated establishments as well as the whole or transfer of their commercial property. . It is to make litter of company law, excluding any decision of the shareholders’ meeting. It is to make litter of company law, excluding any decision of the shareholders’ meeting. the transfer in question may be time-barred even outside the framework of collective proceedings. For the sake of symmetry, the central bodies of the mutualist and cooperative networks also have the option, when the financial situation of the establishments concerned justifies it, of deciding to merge two or more of these affiliated establishments as well as the whole or transfer of their commercial property. . It is to make litter of company law, excluding any decision of the shareholders’ meeting. the central bodies of the mutualist and cooperative networks also have the possibility, when the financial situation of the establishments concerned justifies it, of deciding to merge two or more of these affiliated establishments as well as the total or partial transfer of their business assets. It is to make litter of company law, excluding any decision of the shareholders’ meeting. the central bodies of the mutualist and cooperative networks also have the possibility, when the financial situation of the establishments concerned justifies it, of deciding to merge two or more of these affiliated establishments as well as the total or partial transfer of their business assets. It is to make litter of company law, excluding any decision of the shareholders’ meeting. to decide on the merger of two or more of these affiliated establishments as well as the total or partial transfer of their business assets. It is to make litter of company law, excluding any decision of the shareholders’ meeting. to decide on the merger of two or more of these affiliated establishments as well as the total or partial transfer of their business assets. It is to make litter of company law, excluding any decision of the shareholders’ meeting.

69. – Finally, the protectionist attitude of certain countries is particularly acute in the context of banking concentrations, as recent examples show. Some States prohibit or limit the establishment of foreign credit institutions on their territory by providing for very heavy legal constraints. Obviously, this complicates and slows down banking concentrations. Thus, the Norwegian authorities have long refused the offer of Merita-Nordbanken on Christiania before giving their approval. The Portuguese authorities opposed the takeover of the BPSM-MC group by BSCH and the intervention of the European Commission was necessary to allow a partial unblocking.

70. – We will therefore demonstrate that account is taken of the specific nature of banking and finance in concentration mechanisms in domestic law (chapter 1) as well as in Community law (chapter 2).

Chapter 1: Concentration mechanisms in domestic law

71. – It should be noted that financiers and economists too often refer to the term “mergers” as operations which, from a legal point of view, only result in acquisitions of shares of companies without merger between the entities concerned which remain legally distinct. The rigor of the jurist is not satisfied with this. This is the reason why it is necessary to make an essential distinction.
The merger and the takeover are thus distinguished by the nature of the object of the obligations of the parties. With regard to the merger, the obligation of the absorbed or combined bank is to make the contributions while for the beneficiary company, it is a question of settling the net assets contributed by means of social rights. With regard to the takeover, the beneficiary bank’s obligation will simply be to pay the acquisition price for the shares of the target. There is therefore a fundamental distinction in the mode of settlement of the concentration. Indeed, within the framework of the merger, a settlement by means of social rights distributed among the partners of the company or companies absorbed or combined must take place. This requirement highlights that the holders of the capital of the absorbed or combined companies remain “stakeholders” in the new unit resulting from the merger. This criterion therefore makes it possible to distinguish the merger (section 2) from other concentration operations such as the acquisition of control (section 1).

Section 1: Acquisitions of control

72. – As P. Coupaye points out: “the constitution of banking groups which occupy a dominant position on the market was carried out (…) through numerous equity investments. This concentration has generally taken place through takeovers of existing companies. During this period, we sometimes witnessed large-scale stock market maneuvers to ensure control of the coveted establishment or establishments”. The author alludes to the famous battle between the Suez and Paribas groups, with regard to CIC: given the 1966 legislation, the investment banks expressed the desire to widen their room for maneuver, by taking an interest in the banks depository with a sufficiently extensive network of counters. In this context, the banks Paribas and Suez engaged in a severe financial confrontation in 1968 to take control of CIC. After many stock market adventures, the Suez group took control of CIC, but sold 80% of the capital of the Banque de l’Union Parisienne to Paribas in 1971. The Crédit Commercial de France banking group was essentially formed by taking control of existing units. In a first phase, it strengthened its geographical presence by taking stakes in local or regional banks as well as in specialized establishments. In 1965, the CCF took stakes in the Regional Bank of Artois, in Finindus, in the Pierre Brun et fils bank, in 1966 in the Kolb bank and in the Borgeaud bank, in 1967 in two rediscount houses Morrhange et Cie , as well as Union d’Escompte, in 1968 in Banque Rivaud, in 1971 in Banque de Savoie, in 1972 in Banque Derobert. These concentration operations are interesting because they show that the beginnings of the concentration movement go back several decades. However, it should be noted that these concentration operations are small in scale compared to recent takeovers. Since 1996, the concentration movement has truly taken shape. Most of the major French banking groups have experienced numerous operations that have resulted in the takeover of very significant establishments. It can be cited, in 1996, the takeover of Indosuez by Crédit Agricole, in 1997, that of Crédit du Nord by Société Générale, in 1998, that of Natexis by the Banques Populaires group and that of CIC by Crédit Mutuel. In 1999, Crédit Foncier de France was acquired by Caisses d’Epargne, while BNP took control of Paribas. Finally, in 2003, Crédit Agricole succeeded in its public offer for Crédit Lyonnais and, in 2004, Crédit Foncier de France acquired Entenial.

73. – These concentrations lead to the creation of complex groups. Indeed, financial links can be established in various ways:
– a company takes exclusive control of a bank which becomes its subsidiary;
– several companies can together create a bank which will be their joint subsidiary;
– several companies may jointly take control of another bank.
We will therefore study the acquisition of exclusive control (§ 1) but also the joint takeover (§ 2) by demonstrating that the banking and financial specificity is taken into account in these modes of concentration.

§ 1: Taking account of banking and financial specificity in the acquisition of exclusive control

74. – In France, the legal acceptance of the notion of control dates from the mid-1980s. This period corresponds to an amplification of the phenomenon of mergers and inaugurates a real legal recognition of the power of control. This legislative consecration is imperfect. Many difficulties are related to the qualification of control (A). The banking object of the operations increases the complexity. This results in a number of issues that are related to the configuration of takeover (B).

A/ Difficulties related to the qualification of control

75. – These difficulties arise from the development of divergent definitions between the different branches of law (1). Undoubtedly, the fundamental problem lies in the determination of the threshold of the takeover (2).

1/ Divergent definitions

76. – The concept of control is presented as a functional concept whose usefulness has precisely consisted in allowing the legislator and the case law to draw the consequences of the phenomenon of concentration. It is therefore defined punctually according to its use. Thus, a difficulty lies in the fact that there is not one but several acceptations of control whose meaning varies with use. There is undeniably a feeling of heterogeneity.

77. – In company law, this notion is considered complex, even fleeting, because of its dynamism and relativity. There is not one but several legal notions of control. If exclusive control is normally acquired by law when a company acquires a majority of the voting rights of a company, it can also be acquired with a “qualified minority”, which can be established by any element of fact or law. . The difficulty arises from the fact that control cannot, in general, result from the mere existence of a capital link between the structures in question. The legislator has therefore attempted, when developing definitions of control, to capture the diversity of control situations.

Two types of control are envisaged by article L. 233-3 of the Commercial Code. Legal control exists as soon as a company “holds, directly or indirectly, a fraction of the capital giving it the majority of voting rights in general meetings”. De facto control is characterized by the power that the company has, thanks to the voting rights held, to determine decisions at general meetings. This power is presumed when the latter “has, directly or indirectly, a fraction of the voting rights greater than 40% and no other partner or shareholder directly or indirectly holds a fraction greater than his own”.

78. – Concerning the consolidated financial statements, article L. 233-16 of the Commercial Code contains a definition of de jure control and de facto control essentially similar to that of article L. 233-3 of the Code of business. Indeed, this article defines de jure control by the holding of the majority of voting rights and de facto control by “the appointment, for two successive financial years, of the majority of the members of the administrative, management or supervision” with an identical presumption linked to the threshold of holding 40% of the voting rights. Admittedly, it does not expressly refer, like Article L. 233-3 of the Commercial Code, to the power to determine the decisions of general meetings. But it is undeniable that a company having the ability to appoint the majority of the members of the administrative, management or supervisory bodies of another company, holds such power. Ultimately, the only difference between these provisions stems from the fact that Article L. 233-16-II 3° of the French Commercial Code also provides that control arises “from the right to exercise a dominant influence over a company by virtue of a contract or statutory clauses”. This criterion of control is found in competition law. that control arises “from the right to exercise a dominant influence over a company by virtue of a contract or statutory clauses”. This criterion of control is found in competition law. that control arises “from the right to exercise a dominant influence over a company by virtue of a contract or statutory clauses”. This criterion of control is found in competition law.

79. – For competition law, the takeover, a necessary feature of any concentration operation, confers the possibility of exercising a decisive influence on the activity of a company. It is a concept taken up in particular by French law, but also by Community merger law. Articles L. 430-1 of the Commercial Code and 3 § 2 of EC Regulation no. which confer, alone or jointly and taking into account the factual or legal circumstances, the possibility of exercising a decisive influence on the activity of a company”.

80. – The provisions of collective representation law relating to the constitution of the group committee apply to companies controlled under the conditions defined in Articles L. 233-1, L. 233-3 and L. 233-16 of the Commercial Code , but also by dominant influence. The latter always exists when the dominant company holds a participation of at least 10% of the capital of the dominated company and that “the permanence and the importance of the relations of these companies establish the belonging of one and the other to the same economic entity. ”.

85. – The major problem is to know the threshold which will make it possible to qualify the control and consequently the existence of a substantial property right. According to Article L. 233-3-I of the Commercial Code, when a company holds more than 50% of the share capital of another company, we are in the presence of a parent company and its subsidiary in the legal sense. of the term.

86. – However, as we have already shown, there is no need to hold more than 50% of the capital of a company to exercise control. In reality, control of a credit institution is very often monopolized by minorities. Indeed, the majority principle combined with the wide dispersion of shares in the public allows certain minority shareholders to exercise power.
Paradoxically, the controlling shareholders are frequently in the minority, whereas the majority in number have no power over social management. It is therefore necessary to dissociate belonging and control. Unquestionably, we can affirm that the ownership of a certain number of shares will allow shareholders to extend their control well beyond what their membership should give them insofar as they will be able to control the totality of the economic activity of the company.

87. – It is therefore certain that the level of participation in the capital of a firm does not mean by itself that the bank is controlling. “Large packages of shares held by a bank can have a neutral meaning from this point of view. Moreover, the intensity of a control is not automatically proportional to the weight of the participation in the capital of a company. With 10%, total control is possible (…)”. Consequently, part of the doctrine proposes to carry out a case-by-case analysis. It would be necessary to know the distribution of the capital, to compare the rate of participation of the various shareholders, the respective weight of their representatives within the board of directors, to take account of the degree of absenteeism.

88. – This assertion is not called into question by taking into account the specificity of banking. However, the latter leads to increased complexity. There is an autonomy of the banking texts in the determination of the threshold of the takeover (a). The banking regulator’s interpretation also seems specific (b).

a/ The autonomy of banking texts in determining the threshold for taking control

89. – Company law, when it defines the notion of control, provides a certain number of thresholds.

90. – Banking law, in Article 2 of Regulation No. 96-16 of 20/12/1996, refers to the acquisition of the effective power of control without defining this notion. This criterion is foreign to the legal qualifications traditionally retained by company law. Thus, the notion of effective control, used on several occasions by banking regulations, is not defined in relation to Article L. 233-3 of the Commercial Code. This is due to the concern to assess on a case-by-case basis the reality of the control exercised, including moreover in establishments whose corporate form is not that of a commercial company. Given that this text does not specify the threshold for holding an effective power of control, it is necessary to try to find other provisions of banking law which could provide some indications.

91. – Bank accounting law has attempted to give a very realistic definition of the notion of exclusive control. This is much more precise than that given by company law. Indeed, relatively precise indications are provided as to the determination of the takeover. A company is presumed to be exclusively controlled when there are no other shareholders or partners holding together a stake greater than that of the group and each possessing more than 5% of the company’s capital.

92. – In our opinion, this definition is very interesting because it gives a number of indications for setting the threshold for a takeover. However, it is not widely recognized. The banking regulatory authority does not retain this definition either to set the threshold for the takeover.

b/ The specificity of the interpretation of the banking regulatory authority in determining the threshold for taking control

93. – A major difficulty is therefore to know from what threshold a bank obtains control of its target. This problem was highlighted in the BNP/Societe Generale/Paribas affair. In a decision of 08/28/1999, the Credit Institutions and Investment Firms Committee decided that BNP had not obtained “effective power of control” over Société Générale with 31.8% of the rights of voting.

94. – Thus, if it appears obvious that it is not enough to refer to the rates of the simple majority of 50% of the capital, it is commendable to seek what is the threshold for the acquisition of control of an establishment of credit for the CECEI. This is essential in the banking system because, if the CECEI finds that an initiating company has not succeeded in taking control of its target, it can prohibit it from keeping its stake. This was the case in the BNP/Société Générale/Paribas case. The CECEI found that BNP did not clearly have the effective power to control Société Générale. The Committee considered that, in a non-concerted framework and taking into account the shareholding structure of this establishment, the holding by BNP of such a stake was likely to disrupt the management of Société Générale. However, because of its place within the French banking system, the risk of disruption of its management was likely to thwart the overall functioning of the banking system. The Committee therefore decided not to authorize BNP to hold its stake in Société Générale. It can therefore be seen that the CECEI does not want to leave credit institutions in ambiguous situations concerning their control. However, he failed to demonstrate precise thresholds of control. the Committee decided not to authorize BNP to hold its stake in Société Générale. It can therefore be seen that the CECEI does not want to leave credit institutions in ambiguous situations concerning their control. However, he failed to demonstrate precise thresholds of control. the Committee decided not to authorize BNP to hold its stake in Société Générale. It can therefore be seen that the CECEI does not want to leave credit institutions in ambiguous situations concerning their control. However, he failed to demonstrate precise thresholds of control.

95. – First of all, it seems that it can be said that he did not refer to the takeover threshold set by Articles L. 233-3-II and L. 233-16 -II of the Commercial Code. Indeed, an impression of autonomy emerges from the notion of manifest possession of the effective power of control vis-à-vis that of presumed control. It should nevertheless be specified that the level of participation obtained by BNP in Société Générale prevents any definite conclusion from being drawn on this point.

96. – Next, the silence of the CECEI on the criteria it uses also makes it impossible to have any certainty as to the use of the notions of “control in fact” or “decisive influence” used by the internal and Community authorities of the competition. On the one hand, de facto control requires a retrospective vision of the distribution of powers in society. It is carried out, by definition, in view of the progress of the general meetings, therefore, over time. In the BNP/Societe Generale/Paribas case, the CECEI did not carry out such a check due to the context and the urgency of resolving it. It appears that the protection of the banking and financial system requires not leaving credit institutions in situations of uncertainty concerning their control. It is moreover for this reason that the authorization of the CECEI intervenes a priori before any meeting. Such a review over time is therefore difficult to implement. On the other hand, concerning the use of the concept of decisive influence, here again, we can estimate that it was autonomy that prevailed with regard to the 31.8% of the voting rights acquired by the BNP. Indeed, the latter was likely to exercise a decisive influence because of the dispersal of the rest of the capital and voting rights.

97. – Finally, it is certain that the takeover threshold set by the texts of banking accounting law was not retained. Indeed, as we have already specified, control is presumed there when there are no other shareholders or partners holding together a stake greater than that of the group and each possessing more than 5% of the capital. The BNP respected this scenario. Therefore, it is certain that the CECEI here adopted a specific interpretation of the notion of control.

98. – We have just highlighted the complexity of defining the threshold for taking control. The difficulty is further increased in certain hypotheses because of the configuration of the acquisition of control.

B/ Difficulties related to the configuration of the acquisition of control

99. – Banking and financial specificity is taken into account in the acquisition of control of private (1), public (2) and mutual (3) entities.

1/ Taking into account the banking and financial specificity in the acquisition of control of a private bank

100. – Schematically, two situations can be distinguished where the protection of the banking and financial system seems essential. Banking and financial specificity is therefore taken into account when a bank is failing (a) and when it is listed on the stock exchange (b).

a/ Taking account of the banking and financial specificity in the acquisition of control of a failing bank

101. – Insolvency proceedings in a company are a normal, inevitable and even desirable phenomenon when they are the consequence and the punishment for mismanagement.

102. – In our opinion, this reasoning cannot be transposed to the banking system. Indeed, the latter is still currently closely associated with the production and management of money. Admittedly, this currency is increasingly difficult to define and identify, as it is dematerialized, but it remains fundamentally linked to the idea of ​​trust. Because money conveys confidence, the failure of a bank has a far greater resonance than the insolvency proceedings of an industrial or commercial company of equivalent size. Thus, failing banks were frequently rescued under the aegis of the state (α). If in some cases, the latter was the real architect of the rescue, it is now the intervention of the banking regulatory authority that is consecrated (β).

α/ The rescue of banks under the aegis of the State

103. – The crisis of the 1990s put a large number of French banks in difficulty. The State, not wanting to liquidate them, has frequently launched rescue plans which have resulted in the failing banks being backed by more powerful groups.

104.– Let’s take the example of the Comptoir des Entrepreneurs. It is a public limited company under private law to which the State has entrusted a mission of general interest in the construction of housing, which allows it to distribute subsidized loans under various formulas. Since the end of the 1980s, it has been deprived of the distribution of loans assisted with access to property, now reserved solely for Crédit Foncier de France.

Thus, on 02/17 and 19/1993, the Comptoir des Entrepreneurs was no longer able to renew certificates of deposit with Société Générale SICAVs. The latter is in a state of cessation of payments and, technically, in a situation of insolvency.

With many difficulties, the State manages to set up a rescue of the Comptoir des Entrepreneurs. This is, in his view, the only solution to prevent panic on the interbank market and on the bond market where the Comptoir des Entrepreneurs is a major issuer. The plan has three components:

– a capital increase of 800 million francs accompanied by the issue of subordinated debt securities in the amount of 200 million francs. AGF increased their stake to almost 30% and Crédit Foncier entered the capital with 10%;

– a credit line of 6 billion francs was granted by the main Paris banks in the name of the solidarity of the financial centre, on the initiative of the Governor of the Banque de France, who activated the procedure provided for in article 52 of the Banking Act of 24/01/1984;
– lastly, Caisse des Dépôts granted a cash advance of FRF 1.6 billion against guarantees provided by Comptoir des Entrepreneurs.
Despite this rescue plan, the sale of more than FRF 3 billion in receivables and the issue of FRF 5.5 billion in bonds with a government guarantee, Comptoir des Entrepreneurs found itself on the brink of collapse a year later.
In 1994, a debt assignment system was put in place, enabling the main property risks to be removed from Comptoir des Entrepreneurs’ balance sheet.

The Comptoir des Entrepreneurs still accumulated losses of 1024 million francs and it was necessary to set up, in 1995, a second operation to deleverage the balance sheet for an amount of 7 billion francs. The State intervenes as a guarantee to the tune of 4.5 billion. AGF then contributes 450 million to the subscription of subordinated debt securities issued by the Comptoir des Entrepreneurs. The balance, ie 2.1 billion, is made up of senior debt obtained by converting loans granted by AGF and Caisse des dépôts. Finally, a recapitalization of approximately 1.2 billion is planned over two years. Two transactions in 1996 for 700 and 550 million francs brought the Comptoir des Entrepreneurs under the control of AGF with a direct stake of 52, 43% and the contribution of their subsidiary Société d’Investissement Bancaire et Immobilière at 22.46%. This operation confirms the backing of the Comptoir des Entrepreneurs to the AGF.

The balance sheet of the Comptoir des Entrepreneurs is lightened following the two defeasance operations and cleaned up. However, its solvency has not been restored since its equity ratio does not exceed 5%. This is why the AGF have the titles of their participation in the capital of the Comptoir des Entrepreneurs carried by a holding company so that the Banking Commission, rather than controlling the solvency ratio of each component of the group, is satisfied with an overall assessment. .

105. – This rescue operation by the State was not the only one; we can also cite the case of Crédit Foncier de France.

The latter is a specialized private financial institution. Although being a private company, it is in fact dependent on the State. Two-thirds of the capital is in the hands of individuals and institutional investors. The share of Caisse des Dépôts and public insurance does not exceed 15%. However, it is the state that appoints the governor and key leaders.

Since 1977, Crédit Foncier de France has shared a monopoly on the distribution of assisted home ownership loans with real estate credit companies and the Comptoir des Entrepreneurs. From 01/10/1995, the latter are abolished in particular because the fall in market interest rates makes conventional mortgage loans less expensive than subsidized loans for home ownership.

In 1995, the real estate crisis leading to a fall in the value of assets and demand for loans, Crédit Foncier de France suffered a loss of 10.7 billion francs and was unable to meet its prudential obligations. This is particularly failing with regard to the provisions it should have constituted for its real estate risks.

The State, unable to appeal to any reference shareholder, organized the rescue of Crédit Foncier de France itself, insofar as a simple liquidation could have led to the collapse of the entire mortgage market and bond.

At the start of 1996, after lengthy negotiations, Crédit Foncier de France obtained a line of credit allowing it to refinance itself for an amount of 20 billion francs at market conditions. Undoubtedly, the Caisse des Dépôts et Consignations acts as a lender of last resort in place of the Banque de France, which does not wish to create a precedent by intervening itself in an overly conspicuous way. Then a few months later, the State itself guarantees the bond debt of Crédit Foncier de France which is, with an outstanding amount of 270 billion francs, the second issuer after the Treasury. Consequently, the State is actively seeking to back Crédit Foncier de France with a more solid institution which would take over the net liabilities. It took more than three years for a solution to be found to this crisis.

In a press release dated 03/13/1997, Minister Arthuis, whose services are advised by Deutsche Morgan Grenfell, launched a call for applications to recapitalize Crédit Foncier de France, which had been without capital for more than two years. A year later, this not very transparent procedure ends up releasing a potential buyer. A consortium formed by GMAC, the Texan investor Bass, the Caisses d’Epargne and the CCF, is continuing the discussions, after the abandonment of GE Capital, the Post Office and the Caisse des Dépôts et Consignations. Despite the interest of American groups for the prospects offered by the securitization of mortgage loans, the negotiations were finally broken off in 09/1998, in the face of the derisory price offered and guarantee requirements deemed exorbitant.

Minister Dominique Strauss-Kahn then announced a completely different plan. The first stage is that of a financial restructuring of Crédit Foncier de France to restore its solvency. The second stage is that of an “open, transparent and non-discriminatory” backing procedure. It led to a new Crédit Foncier, the main player in the obligations foncières market, which restored all of its attractiveness to the establishment in the eyes of potential buyers.

Crédit Foncier de France’s articles of association have been simplified and brought into line with company law, which excludes the appointment of managers by the State. Finally, Crédit Foncier de France is recapitalized with the approval of the European Commission. The operation is led by the Caisse des Dépôts et Consignations, as a shareholder advance, for an amount of 1.85 billion francs. This makes it possible, after reduction of the share capital, to bring the institution’s own funds to a level that complies with prudential regulations.

Finally, the buyer of 90.6% of the capital of Crédit Foncier de France is the Caisses d’Epargne group. Given that shortly before the final choice, the law of 25/06/1999 modified the status of the Caisses d’Epargne by making them cooperative companies and by providing the network with a central body, namely the Caisse Caisses d’Epargne, which becomes the real buyer of Crédit Foncier de France. It should be noted that the general interest mission of financing social housing falling within the remit of the Caisses d’Epargne, the attachment of Crédit Foncier de France is entirely justified.

106. – Unquestionably, these operations to rescue French banks were carried out under the aegis of the State. Yet, gradually, political intervention gave way to legal regulation. Indeed, from now on, the treatment of failing banks is carried out through the intermediary of the banking regulatory authority.

DAMY Law Firm