Credit Mutuel Mediterraneen : pursuing its independence and objectives, while adhering to its code of ethics

Crédit Mutuel Meditérranéen : pursuing its independence and objectives, while adhering to its code of ethics

Our goal is to create, in Crédit Mutuel, a discretely powerful organization that is nonetheless a force to be reckoned with in the French banking industry. And an organization that is more alliance oriented, more focused on the retail sector, which of course doesn’t preclude our coming up with and implementing new ideas. Crédit Mutuel Meditérranéen is strongly focused on its region and has a strong presence in it, and isn’t in danger of being lost in the shuffle in view of the bank’s robust commitment to global advancement of the system. But the fact remains that the general policy of this mutual bank is anything but straightforward, as its chairman Pierre Filliger explained in an interview.

“You have to remember that our organization is divided into a number of autonomous groups. This is the great guiding principle of Crédit Mutuel, although there is a dominant group within the organization: Alsace, which currently accounts for 70 percent of the whole bank. This is the group that is in a genuinely strong equity position, and which took over CIC when the government made the attendant policy decision. Michel Lucas, who is president of the Alsacian group, is also chairman of CIC. Contrary to what people might think, the independence that each business unit has means that little in the way of financial resources is made available to a group such as ours, whose self-creation and evolution hinges on the efforts made by its own stakeholders. Moreover, owing to our regional location, we’re somewhat sidelined when it comes to certain matters and we don’t always fully participate in the advances made by the organization as a whole. Needless to say we obey the law, but there’s no real central system. It’s basically “you’re independent – so fend for yourself.”
This independence, which makes perfect sense when you look at it from the standpoint of freedom, is perhaps not the optimal solution when it comes to rapid growth. This is perhaps the lack that Mr. Filliger was getting at when he said this: “It seems to me we definitely could have grown a lot faster if we’d had the resources we needed. But in view of the independence of each group, there’s the policy dimension and there’s the financial dimension, and if you’re not financially independent, you’re no longer independent either. This doesn’t mean we can’t undertake certain things as a group, particularly when it comes to communication, but we always end up having these interminable meetings and debates in order to come to an agreement.” It should be pointed out that each group is subject to banking committee rules, most notably the solvency ratio, which allows for considerable leeway but also entails a great deal of accountability. The committee pools the information systems that are used by all of stakeholders, but there too the Alsacian group dominates since it’s developed the farthest.
This dominance is ubiquitous, particularly when it comes to the insurance programs that the group has been marketing for 20 years and that it sells to the customers of the various Crédit Mutuel de France branches. There are of course two noteworthy factors in this arrangement. The first runs counter to market deregulation, and the other is very free-market oriented, particularly at the internal level, which perhaps means that mutual banks are breeding grounds for ambiguity.

Mr. Filliger’s response wasn’t long in coming “That goes to the heart of the problem. Because after all how can you reconcile these two things? How can we grow over the course of the years since it’s our inescapable fate, while at the same time we don’t receive the support that would enable us to be responsive instantaneously. That’s the whole problem right there.” And Mr. Filliger also noted the following: “Remember that we purchased our first building on credit in Marseilles by creating a non-trading real estate partnership so that we could borrow the funds we needed from our own bank. I must say that this is a very peculiar way to be independent. Apart from that, we try to blend in and support the national rules, but they’re not the least bit restrictive.”

Some changes of strategy are called for in an ever changing region

The fact that we run our own ship is definitely quite an advantage, particularly in terms of full integration into the regional fabric, which is the ultimate goal of fostering a proximity orientation. But on the other hand, you can also suffer from having to go it alone, the problem of having to contribute to a large program all alone when you don’t have enough power to run it. This approach definitely engenders feelings of frustration and impotence in terms of the options another bank might have, and particularly an affiliated bank, CIC, which can implement a policy concerning various projects, not to mention the resources CIC has to implement such policies. But from Mr. Filliger’s standpoint, this situation, unwelcome though it may be at times, is not hopeless, and he explains: “This state of affairs functions effectively at the level of regional integration, we’re part of the integration process and it’s the driver of all of our activities. Apart from that, I feel that it’s unwise to develop a “capitalistic” dimension now when Crédit Mutuel is the basis of everything. Because the two things could have developed side by side, using the same resources, and taking into account, in my view that the institution of the mutual bank has a bright future ahead of it. As for large projects, we would be required to ask friend for assistance, assuming that they’d be willing to join forces with us. That being said, a lot of our associates would be interested in doing something here. But there’s no getting around the fact that there’s a major discrepancy.”
This exposition of the problems helps shed light on the risks and benefits of too much independence. Nonetheless, in the current state of affairs and the attendant decentralization of mutual banks, it’s clear that they have been forced to take a different tack in order to meet the needs that have been engendered by the pan-European order of things. Which poses another problem for a regional organization, which has to try to survive and in so doing come to terms with this “globalized” context. Needless to say, this situation doesn’t necessarily have anything to do with the objectives of Crédit Mutuel Meditérranéen , which is more likely to opt for an incremental regional strategy, rather than a level of international growth that it may not be able to control. Mr. Filliger came right back with the following: “At the international level, the only game in town is CIC. Crédit Mutuel comes into play in this spiral somewhat now too. If there’s a financial problem that is related to an international problem – substantial regional financing for example – we will use affiliates (with a majority share) that are managed by Strasbourg, where other groups exist. The structures are there. If we wanted to finance international trade or a major program right now, we could do it without any difficulty. But Crédit Mutuel Meditérranéen ’s main role is to remain regional, and I believe it will do just that. It will have its own areas of activity, and it has the structures it needs for everything else. We created Camefi Banque for businesses and it’s doing pretty well for a product that’s still in its infancy. We currently have €450 million invested in the product, whose development is the outgrowth of a project we undertook with our colleagues in Brittany, which clearly demonstrates that we do indeed collaborate with each other. That being said, there are various factors that come into play. We want to maintain our independence and we still strongly believe in this concept of independence, which I feel is important. We’re being told now that it’s not important any more and that everything’s going to be europeanized. But frankly I don’t buy this. It seems to me that a bank that’s proximity oriented has good development opportunities because it will always have a raison d’être. Currently, if we have a major project, we contact our partners, either French or foreign banks; since we have associates that are willing to work with us we’ll still be involved in the project even if we only finance a minute fraction of it. In any case, I don’t see how Crédit Mutuel can hope to penetrate other markets unless it avails itself of structures that have nothing to do with Crédit Mutuel. There are plenty of examples that can throw light on this issue of the international dimension. Crédit Mutuel du Nord for example, is set to begin activities in Belgium. Brittany plans to try to develop in the adjacent regions because it can’t develop in the Atlantic coast region. Alsace is doing likewise, and has all the structures of a European bank of the future. They’re making insurance investments in Algeria, Morocco, and Tunisia. They have more than just agreements with Desjardins in Canada thanks to the substantial amount of equity they put in. Also, they have a trading room in New York, and offices in London and Hong Kong. They have the tools, although they haven’t yet reached the top international level; but they’re alive and kicking. So I think this shows that Crédit Mutuel should be able to find solutions.”

Toward major regional growth

To come back to a more regional subject, Crédit Mutuel Meditérranéen is currently realizing general regional projects via its Crédit Mutuel affiliates, i.e. foreign banks, as Mr. Fillinger explained. But the Group is mainly interested in developing the network of proximity oriented banks in the coming years. “Local funds with a board of directors and maintain this stance, even if it seems a bit out of date,” said Mr. Filliger, who then added: “By the way we have announced that we’re going to be opening between five and ten new branches. We’re behind schedule for a number of reasons, mainly real estate, which is proving to be a headache owing to the high prices. It’s difficult nowadays to find the kind of good location you want, and some of these projects are stalled for this reason alone. It is absolutely essential that we open a minimum of seven points of sale annually, which would reflect our current level of demand. The investment volume is definitely high for a group such as ours, but we’re going to do it anyway. We also need to wrap up the Valence project that’s currently ongoing because nothing’s been settled yet, the group contracts haven’t been harmonized, there’s still a lot left to do. This will be our task for 2007, we have to get this finished within a year.
Valence has a few projects ongoing, as do we, particularly in the agricultural bank domain. We’re quite focused on agriculture at the moment for the simple reason that Crédit Mutuel has a 10 % share of this market at the national level, and our own performance isn’t anywhere near that. So we’d like to set a goal of acquiring a 10 % shares of the regional market. We receive quite a few queries by the way, particularly from the Languedoc Roussillon region, and this has prompted us to hire agronomists. They’re already been deployed to the relevant locations where they’re providing advice, financing etc. We plan to establish and grow our agricultural activities. We’ve already financed some large scale projects, particularly in the wine growing sector. We plan to apply this same process in the Vaucluse region and to improve our performance in the Var region. We have the resources we need for a launch and we’re in the process of refining them. In addition, we have a nationwide agricultural Web site where growers can obtain information free of charge concerning new evolutions in the regulatory domain, and all the other information that’s indispensable for their activities. This tool is undergoing a continuous improvement process with a view to making it even more effective in 2007. We’ve been planning for two years now to make a commitment to this model and we’ve found that it’s not all that easy to integrate a platform, particularly when you start from scratch in a competitive environment. But monopoly is never a good thing, particularly when it comes to development.”
Mr. Filliger clarified his inter-regional priorities in these terms: “We already have a presence in the Var and Alpes Maritimes regions but it’s not strong enough yet. We plan to focus our efforts on Nice and to open three points of sale there in the near future. These projects are in the pipeline, and there’s a lot of work to be done in this city. And then we also need to develop the Vaucluse region. We already have two Crédit Mutuel Agricole points of sale in Villeneuve, and things are going very well in Cavaillon and Carpentras. This expansion is part of our near-term objectives. Perhaps Briançon, where we’re currently considering an opportunity that has arisen with our associates in Valence. Admittedly we don’t have much of a presence in the Hautes Alpes and Alpes de Haute Provence regions, but we haven’t been able to come up with any suitable locations.”
Major projects for the new year, which promises to get rolling with weighty objectives afoot. After a moment of reflection, Mr. Filliger explained the absence of certain regional points of sale in these terms: “Since the group was created in Marseilles, the center of gravity is there. But in Marseilles we tend to achieve levels that don’t merit development because they have to remain small scale branches. We feel that points of sale with a staff of ten or so are fine, but that things wouldn’t go as well if the branches were larger than that. But this won’t prevent us from opening a new branch in the near future in the St Jerome district of Marseilles. But you have to realize that we created our group from scratch, without any outside assistance and with no financial resources. We created a bank using members’ funds. People say to us, “Well you can just do Livret Bleu savings accounts, because as a bank you’re authorized to do this in the Crédit Mutuel system. You can raise funds through savings. We used this to grant loans, we used our margins to pay our expenses and for investments. But no one ever gave us any seed capital or other financial resources. And we haven’t developed as quickly as we might have liked to for the simple reason that we know how much it costs to do this. Opening one new bank will translate into a €10 million loss over a three year period. We simply have to tolerate this loss, in light of the fact that we won’t see any ROI from this project until the end of the fourth year. At which point we’ll be in a position to open other new branches. At this rate we have our task cut out for us in the region for the next 50 years! I think that if we continue to develop, we have the capability to establish a network that performs better and to remain a major force in the region, which is part of our goal. We’ve been in the region for 30 years, and we’ve done as well and maybe even a bit better than other banks, on a pro rata basis of course. But we’ve always been concerned to maintain our independence; the rest doesn’t follow. Which means that if the region’s economy suffered a major collapse tomorrow, we wouldn’t be prepared.”

All proximities are not created equal

When you talk about proximity – which is the major buzzword today – a region such as ours is situated in close proximity to both Italy and Spain. And there’s nothing to prevent a financial organization from adopting a blinkered view of its immediate environment and the events unfolding in it. This possibility did not escape Mr. Filliger’s notice, as is shown by what he said about partnership and proximity, i.e. an alliance: “It seems to me that a partnership, or even more than that, is a possible option. But not in the near term because we haven’t really worked out the details yet. But I’d say yes! It seems to me that our neighbors have the same problem, so we have no choice but to find some common ground somewhere. We tried a few years ago with a bank in Valence (Caisse d’Epargne de Valence), but we were clearly still too small, and we didn’t have much to offer them and vice versa. So it just remained at the level of a courtesy visit. But I’m sure that we’d achieve this in a future banking system. That being said, we don’t have the regional infrastructure that would enable us to handle a large scale partnership with a group. Our inherent independence precludes our achieving the requisite critical mass, so this type of alliance would have been reserved for a national structure.”

Diversification: the way forward

Despite the fact that Crédit Mutuel is or is part of a small bank, it has launched a project that is currently ongoing, namely investing in the weekly newspaper Le Dauphiné Libéré. Once the initial shock wore off, a lot of people wondered why this was done without looking at the past, because if they’d done it, they would have noticed what Mr. Filliger pointed out: “I don’t think we have majority support on this issue at the moment, but I’m confident that we will – it’s in the works. I can’t say too much about this matter because it’s not us, Crédit Mutuel Meditérranéen . I think it originated with [the regional newspaper] Est Republicain,” which has owned the newspaper l’Alsace for many years. They also own part of Dernières Nouvelles and a bit of Le Monde, so they’ve sort of got a finger in every pie. But I want to make it clear that we do not currently have an explicit national communication policy. Our Alsatian associates will be doing the investing, not us. For the moment the answer’s going to be, “We don’t have any plans, we’ve been asked to invest in a newspaper on the strength of our experience. And our answer is ‘why not!’” Since the price isn’t exorbitant, apparently anything can be rationalized, all you have to do is create an appealing platform and off you go. I think they’ll be able to quickly put all the newspapers on an even keel. But I find it hard to imagine that anyone would acquire a newspaper without having a concept, so I can’t really tell you that a concept is lacking. However, if their focus only extends to regional newspapers in our region, we’d definitely want to make a very major commitment to the project – an option that’s not totally out of the question by the way.

Apart from this, Crédit Mutuel Meditérranéen is also interested in other avenues of diversification, as Mr. Filliger explained: “For the past few months we’ve been investigating retirement home related problems. Helping people is set to be one of our major focuses in 2007 and these are the kind of issues that we feel are an inherent part of the role that Crédit Mutuel could play. Needless to say, in terms of retirement homes we’re thinking of investing in construction, but perhaps not in management, because we have the resources that would allow retirement homes to be managed by specialists that are experienced with this sort of thing; they’ve got the know-how. I see this as being very much a part of our bank’s role as a socially responsible organization. We’d very much like to make a positive contribution to the whole retirement home domain, perhaps by offering more affordable prices or better services. We’re currently looking into this with our associates in Nantes, who have a great deal of experience with real estate and low income housing, which is another sector we’re interested in by the way. I think a great deal remains to be done at this level in our region.” And by way of conclusion, Mr. Filliger remarked: “By the way, it’s also with a view to doing something for the common good (which is perhaps sometimes neglected) that we’ve decided to commit to the project concerning the fight against cancer, by responding favorably to the chairman of Crédit Agricole’s proposal that we get involved in the U2T project, after he submitted it to us. We had been thinking about engaging in this type of activity for quite some time, and we’re very pleased to be part of this project, and we urge others to follow. Toward this end, we’ve discussed this undertaking with our associates in Valence in the hope that they will join the mutual bank groups that are lending their support to this project. It seems to me that committing to the realization of this project makes all of us part of something genuinely human – which is also in keeping with our code of ethics.”