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By Fatima El Saadani

After years as a bit player in the local banking industry, France’s Crédit Agricole will find itself one of the largest by summer’s end as it finalizes the LE 2.9 billion acquisition of Egyptian American Bank (EAB). By the end of this month, Crédit Agricole will merge its local subsidiary, Calyon Bank-Egypt, with EAB, and rebrand the new bank Crédit Agricole-Egypt in one of the fastest-paced M&A deals the industry has ever witnessed.

The acquisition is part of the French parent company’s drive to roll out universal banking services around the globe; Crédit Agricole Egypt will be the third-largest financial institution in Egypt.

Leading the new venture is Crédit Agricole veteran Adrian Pharès, who becomes managing director of Crédit Agricole-Egypt, 20% of which be in free float on the Cairo and Alexandria Stock Exchange (CASE), likely guaranteeing the bank a slot on the benchmark bt100 Ranking of the Top Listed Companies on the CASE.

Pharès sat down with bt last month to discuss his new charge:

Adrien Pharès: There has been a little confusion in the media about who’s who. Crédit Agricole Group SA is a holding company incorporated in France. It is listed on various stock exchanges with a capital base of around 40 billion, which ranks it among the top five companies in the world in terms of capital.

Crédit Agricole operates several lines of business, one of which is its fully owned corporate and investment bank, Calyon Bank. Crédit Agricole also offers the largest retail banking operations in France, and one of the largest in Europe. The group brought Calyon Bank to Egypt five years ago when it bought a small bank from Crédit Commercial de France (CCF).

After we complete the merger of EAB and Calyon Bank-Egypt, the new entity will be known on the market as Crédit Agricole-Egypt.

We started a small-scale retail banking operation under Calyon Bank-Egypt, which is probably where all the confusion comes from. Although we could have continued our own retail banking operation, it would have taken a very long time to develop it, so we decided to move ahead with a major acquisition.

What we did was familiarize ourselves with the market and take stock of its potential. And when it became clear that Egypt’s retail banking market held a great potential for us, we grabbed the opportunity to acquire the Egyptian American Bank.

We had been analyzing EAB and tracking its performance for several years, and we knew it was an interesting acquisition target from the outset. EAB had several qualities that made it valuable — strong products, its corporate culture and its human resources — which we can get into details about later.

EAB’s two controlling shareholders, American Express and Bank of Alexandria, sold their stakes back in January, and the deal was closed on February 22. Since then, we have been in the process of merging the two banks to produce what we would, a little pompously, call “universal banking” — because our client base will extend from the small retail client to the very large corporations, all under one umbrella, which is Crédit Agricole-Egypt.

After the Central Bank’s merger campaign of the last two years, Egypt’s banking system is much cleaner and more financially solid now than ever before. Today, the system has healthier banks, and the market is considered truly competitive compared to a few years back, when the banks were in a bad shape and competing with them was difficult.

There are still a lot of Egyptian, Arab and international players competing for as big a market share as they can get, and that has enormous benefits for the client, who will get modern banking, new products and better services as a result of competition.

This is a huge step towards internationalizing our retail banking operations. Calyon Bank has branches in almost 60 countries; Crédit Agricole’s retail arm is very strong in France, but it has very little outside France: just a few universal branches in francophone Africa.

Our new strategy is to build a network of banks, and EAB represents our first acquisition move.

At the outset, Calyon Bank-Egypt was 75% owned by Calyon Bank and 23% by Mansour Maghrabi Investment and Development (MMID); the rest was floated on the stock exchange. With the size of the deal, it made sense that Crédit Agricole and not Calyon Bank should acquire EAB. [With 64.8 million shares changing hands at LE 45 each, the deal is worth LE 2.9 billion.] That meant approximately 56% of EAB would be owned by Crédit Agricole and 19% by MMID, with the remaining 25% floating in the market.

We held a combined general meeting for Calyon Bank-Egypt and EAB shareholders on June 28, and with almost complete unanimity the shareholders of both banks approved the terms of the merger.

The new bank, Crédit Agricole-Egypt, will be 47% owned by Crédit Agricole, 13% by Calyon Bank, 20% by MMID and 20% will float on the stock exchange.

The Central Bank of Egypt’s statistics track each bank’s shares of total bank loans and deposits in the market, which for the private banks come out to very small figures, because the public banks continue to dominate. I estimate that EAB holds 2-2.5% of total loans and deposits. Calyon Bank-Egypt holds about 0.75%, so the combined figure is about 3%.

As Crédit Agricole-Egypt, we are not targeting Egypt’s entire population of 75 million, nor are we aiming at all its companies. We will focus on certain market segments and work to double our share of a growing market over the next 3-5 years. If the market is 100 today and we have 3% of it, the aim is to reach 6% of a market that will be a 150 in a few years. We have the human and technological resources, as well as the will, to achieve this objective.

We have identified different segments of clients, because you can’t treat someone who is making LE 2,000 a month the same as you treat someone who is making 20 times as much. Within each segment we have a certain target, so we’re not focusing on what percentage of the total we have; we are aiming for a number of clients within each segment, whether corporate or retail.

We have identified a number of companies of various nationalities for which we aim to become one of their main bankers. So I would measure my success by how much of that total have I achieved, and that would be my market share. If I target 100 companies and I achieve 80, then I have succeeded 80%.

What matters at the end of the day is not the market share, but return on equity. We have a variety of shareholders, all of whom are concerned with performance, and that is measured by the return on equity.

There are several costs involved in mergers and acquisitions; after taking them all into account, the combined net worth comes to about LE 1.2 billion. We cannot compare ourselves to public banks, but among private sector banks, Crédit Agricole-Egypt would probably be the third-largest private bank.

Commercial International Bank is the largest and the NSGB-MIBank merger will probably create a bank of nearly equal size. We would probably be right behind them.

One of the strong points about EAB is their very successful retail banking operation, which has good quality products and a widely distributed network: 36 diversified branches in Cairo, the Delta, Alexandria, Sinai, Hurghada and Upper Egypt. Calyon Bank-Egypt has seven branches, which starts us off with 43 total.

Obviously, we want to increase our network density, just like all our competitors. We are not reinventing the wheel here. The strategy is to reach as many people as we can and to be always at the forefront of technology and services.

Clients don’t only want a good product, they also want quality services. Credit card holders don’t want to hear that their card has been refused — and a lot of follow-up and logistics are involved in ensuring that. It’s not enough to say, “We’re issuing credit cards.” We also have to deliver the services that go with it, be they personal loans, car loans or consumer finance.

Moreover, both Calyon Bank-Egypt and EAB have similar agreements with Allianz to provide what we call “life insurance products.”

We also plan to target small and medium enterprises (SMEs) in our retail banking operations. We already have some SME clients, but now we want to define a proactive strategy for those that only use the bank to handle their current accounts. We believe there is enormous potential in Egypt to develop real banking products for SMEs.

CBE figures show that less than one percent — the current estimate is about 0.5% — of the companies in Egypt benefit from 95% of the banking system’s loans. This means 99.5% of companies are not using credit. In France, Crédit Agricole has an enormous market share in the SME segment, and we believe we can develop a positive proactive strategy for them here as well.

Among the vast number of companies, it is difficult to pick out those who deserve credit and those who represent a risk. By definition, SMEs have a level of risk that is higher than other corporations, but there is an average risk level around which most SMEs fall.

There might be a few who are below the average, and they deserve to be catered to as well.

Targeting the SMEs will benefit the whole country, and I know that CIB, NSGB and many others are working towards the same goal. Even the CBE and the World Bank encourage extending support to SMEs. Overall it is indeed risky, but we are in a risky business and there is risk involved with large companies as well. Our job as bankers is to identify those who deserve our trust.

The organizational chart has been drawn up; senior management have been appointed and given their ‘road maps.’ The new management will be a mix of the Calyon Bank-Egypt and EAB staff, but not equally, because Calyon comes to the merger with a staff of 250 people and EAB brings 1,250.

We have made several decisions about appointments, and some of the top-level personnel disapproved of the outcome and have since resigned. Still, this is not a merger of two identical banks where you have to cut jobs to avoid redundancy, and since we aim to double our market share, we do need more people.

There are two very important factors involved in improving customer service. One is information technology. Retail banking handles thousands of clients, and therefore requires state-of-the-art information systems — so that when a client shows up at any branch, an account officer can know everything about the client with the push of a button. To serve a client, we have to know him personally, and that makes information systems key. EAB has already invested in FLEXCUBE, a software product that offers several banking solutions, one that we believe to be extremely powerful and very flexible in terms of new applications.

The other important factor is people. While the culture at EAB is not much different than at Calyon, we are working on changing the spirit. Without dwelling on the shortcomings of the past, we simply want to become a client-driven organization. That requires training. Crédit Agricole Group has invested in a huge training facility to train employees on everything from sales and marketing to operations and risk management for Crédit Agricole’s staff of 200,000 worldwide.

Crédit Agricole-Egypt plans to train the trainers in France, then bring them back to train the local staff. This will change the spirit of individual employees — whether on the front lines or in a support position — to focus on the client.

This isn’t a secret, and it’s a direction all our competitors are moving in. Some are ahead of us, and our objective is to catch up and be as good as the best.

With 75 million people, Egypt definitely has potential. In his very first speech delivered at the AmCham, Prime Minister Ahmed Nazif s “Egypt’s population is not a liability, it is an asset.” People always seek improvement in their lives. Today, the retail market is limited to a few million; tomorrow it will be far larger.

Population also means diversity, and from an industrial point of view Egypt is the most diverse economy in the Arab world. Saudi Arabia is the biggest in terms of GDP, but if you look at the business sectors, Egypt presents a greater diversity of businesses and industries, each with their own challenges.

There is risk, and banks accept that, but there is also reward to be had. Given the right people, the risk-reward equation will hopefully turn out in favor of our shareholders, clients, and, last but not least, there’s staff. Because without shareholders, we have no business, without clients, we have no income, and without clients and income we don’t have staff.

Hopefully, someday Egypt will be like Europe, where 99% of the population has a bank account. A few years back, transactions were mostly done in cash. Today, you can use your credit card almost anywhere you go.

The fast pace of change in Egypt is what makes it exciting. The government’s achievements over the last two years have been enormous, especially compared to Egypt’s past, and there is still a lot more to come.  bt