45 Rue Saint Dominique
Telephone: (1) 45 50 90 00
Fax: (1) 45 55 89 58
Stock Exchanges: Paris
SICs: 6021 National Commercial Banks
Crédit National S.A. is a French commercial bank specializing in medium and long-term financing for French businesses. Unable to accept deposits, the bank raises its funds through bond issues and borrowing. Crédit National manages loans and grants made by French government to foreign governments. The bank's chairperson and two vice-chairs are named by the French president, and its board of directors retains two censeurs, representing the government and named by the Minister of Finance. Crédit National's net profits rose by 9.1 percent in 1992 to Ffr 585.9 million.
Crédit National was formed by an act of parliament after World War I. Since large areas of France had served as battlegrounds in that costly and devastating war, a special government commission had been convened to study ways to finance the rebuilding of the "territories affected by the invasion." The commission's report, which found that existing French banks were unable to raise the enormous sums needed, prompted the creation of Crédit National on July 7, 1919, which was approved by parliament on October 10, 1919. In addition to providing funds for the reconstruction effort, the bank was called on to make loans available to small and medium sized French businesses, which for some time had lacked adequate capital.
During this time, the idea of state-owned, nationalized institutions was not yet popular, and the decision was made to create a private enterprise that would serve the state. Thus, from the beginning, Crédit National was a private company in whose direction the government never directly participated--except that its chairperson and two vice-chairs were appointed by the French president.
To raise sufficient funds to process the reparations payments, Crédit National issued bonds--at a five percent rate for 75 years--worth Ffr 100 million, divided in 200,000 shares. By the end of 1919, the bank had raised Ffr 4 billion. A similar issue followed the next year, and a series of bond issues, at various lengths and rates, followed through 1924, by which time the bank had raised more than Ffr 25.5 billion, or more than 30 percent of the total estimated war damages. Although the bank's original task was to be limited to industrial and commercial enterprises, by 1920 its role was expanded to handle the claims of property and agricultural damages. By 1925 market conditions kept the bank from being able to issue more bonds, and it was granted Ffr 1 billion by the state. Much of this was from monies received from Germany as war reparations. The role of Crédit National thus evolved into service mainly as a paying agent for the state.
Concurrently, in order to create, develop, or renew French industrial and commercial concerns, Ffr 500 million was designated to be lent, for a minimum of three and a maximum of ten years. Crédit National's role as a lending institution was carefully circumscribed by law. It could neither receive deposits in cash, nor make loans other than those for which it was created, nor handle operations normally undertaken by the existing banking system. While Crédit National issued the loans, interest rates were fixed by the government, which also set the conditions of the loans. Four-fifths of the total 500,000 francs advanced for this purpose was to go those areas which had suffered during the war, mainly in the northern and eastern parts of the country. Furthermore, loans were not to exceed Ffr 2 million to the same borrower. The bank's first loan was to a company in the Meuse region in the northeast to finance the reinstallation of a hydroelectric plant, for Ffr 150,000, in 1920. By 1928 the government no longer limited such loans to specific areas and increased the maximum to Ffr 5 million.
By 1933 most of the claims had been settled. In all, more than 1.8 million accounts were handled by Crédit National, which had paid out more than Ffr 32.6 billion in cash and Ffr 31.3 billion in short-term and long-term loans. During this time, Crédit National developed an efficient system with which to handle the huge volumes of documentation used to verify the claims and the number of payments made.
As Crédit National eventually outgrew its original task, the government asked the bank to help develop French economic activities overseas. In 1929 the government approved a project allowing the bank to extend its long-term lending to all of the country's colonies, protectorates, and mandated territories. Low-interest, long-term loans were paid, though most were to help areas which had fallen victim to natural disasters. To administer these loans, Crédit Colonial, a subsidiary, was created in 1935. Economic as well as political considerations made it difficult for the subsidiary to adequately serve the needs of France's overseas possessions, however, and Crédit Colonial was dissolved by law December 31, 1958. It had loaned a total of over Ffr 591 million.
The government also called on the bank to raise capital for large public works projects used to combat the high unemployment of the 1930s, and, in response, Crédit National issued bonds in 1937 and 1938. Encumbered by its efforts to settle war reparations, however, the bank grew slowly in the 20 years after its creation.
The onset of World War II once again saw the bank called to distribute damage payments, by a new law passed October 11, 1940, four months after Paris fell under Nazi occupation. In November 1940 a law was passed introducing three representatives (censeurs), named by the General Assembly, to "consult" the board of directors. Another law was passed in March 1941 which called on lenders, including Crédit National, to issue state-backed loans to businesses engaged in providing necessities, in an effort to keep the economy functioning. In June 1941 the maximum length for loans was extended to 15 years and the total loan amount increased to Ffr 25 million; in 1943 limits were extended to 20 years and Ffr 30 million. The wartime government passed further laws directing funds to be advanced to businesses to revive economic activity (1940), as well as to film producers (1941) and to national and local sports associations (1942).
However, the burden of raising the funds and paying out claims was made immeasurably more difficult by the war. A series of six bond issues followed from 1941 through 1946, as well as an issue in dollars in 1947, and a final issue in francs in 1950. In total these efforts raised Ffr 100 billion, a small fraction of the funds needed to meet damage payments, and the amount outstanding was paid by the French treasury.
Furthermore, although the funds the bank raised were not large, the multitude of laws governing their payment made payment and recordkeeping a complicated task. From 1941 through 1968, Crédit National made more than 13 million payments of more than Ffr 34 billion. At the height of the process more than 7,000 payments were made a day by more than 800 agents. Over 52 million documents were handled which, by 1968, covered more than over five miles of shelves. The enormity of the task--especially after World War II, during which almost no area of France was spared--spurred some dissatisfaction among those who felt the process moved too slowly or felt denied what was owed them.
Much of the government's postwar reconstruction effort was focused on rebuilding key industrial sectors, and Crédit National gave priority to those industries. In 1946 the government instituted a plan to recover the production levels of 1929--with a 25 percent increase proposed by 1952--in certain priority industrial sectors, such as coal, electricity, cement, transportation, and agricultural machinery. The bank was allowed to control its interest rates, and the amount it was allowed to loan to each business from its own funds was raised from Ffr 150 million to Ffr 250 million in 1955. These measures allowed Crédit National to concentrate on making long-term loans to business; these loans grew from Ffr 55 billion in 1950 to Ffr 240 billion in 1958. Its loans to medium-term bank refinancing activity grew from Ffr 149 billion in 1950 to Ffr 435 billion in 1958.
In 1955 the French government created the Economic and Social Development Fund (FDES) to more directly stimulate the private sector to meet reconstruction objectives, via large state subsidized loans. Representatives from Crédit National and other financial institutions joined with government ministers on special lending committees to direct economic policy. In 1959 the French franc was devalued, and henceforth, the bank's financial figures represented "new" francs.
The bank was also used to stimulate French business overseas. The French government passed a law in 1960 to increase loans to foreign public service projects guaranteed by their governments. In exchange for these loans, such projects were expected to commission work from French businesses and industries. In 1967, hoping to increase the country's exports, French government emended the law so that loans could be made directly to foreign countries. Crédit National made a series of loans, on behalf of the government, to such countries as Chile, Vietnam, Greece, Cambodia, Lebanon, Mexico, and India. From 1962 to 1968, Ffr 554 million was paid out by the bank for the state.
In the mid-1960s the government again decided to use the FDES program to directly support French business, and Crédit National participated actively in distributing these loans. By 1965 total loans were at Ffr 1.4 billion, and by 1968 they had reached Ffr 4 billion. To stimulate the economy during the recession of the mid-1970s, the government made available huge subsidies on capital expenditure projects. After 1975 Crédit National dominated in the distribution of these loans.
By 1985, however, the period of government intervention in the economy was perceived as coming to an end, and state funding for its program of subsidized loans was substantially cut. Crédit National's long-time role as adviser and financial agent of the state became obsolete as the era of deregulation arrived. After 1987 the bank no longer distributed state subsidized loans, and was forced to address the changing financial situation by diversifying. While Crédit National's clients had largely been large industries, the bank now sought out the service sector. By 1987, the bank's clientele as well as its financing options had changed significantly. That year nearly 40 percent of its loans were made to service companies, up from 12 percent during 1982-84, and 30 percent of its customers were companies with less than 500 employees.
Crédit National also began to acquire interests in other businesses during this time. In 1987, it acquired a majority position of the Dupont-Denant stockbrokerage firm, and the following year, it acquired Alfi Gestion, an investment-fund management firm. Crédit National increased its new credit agreements by 25 percent in 1988 to Ffr 33.3 billion. Moreover, the bank created the Financière Saint Dominique subsidiary, a holding company that provided equity and quasi-equity financing.
In the late 1980s Crédit National entered the real estate market in a further effort to diversify. The difficult economic period that commenced in 1989, causing the number of business failures to increase 40 percent between 1989 and 1992, affected some of the bank's activities more than others. In 1989 the bank's net profits soared 59.5 percent over the previous year's, but dropped the following year by 27.8 percent, to Ffr 499 million. Nevertheless, Crédit National remained committed to its real estate activities.
In 1991 the bank initiated a three-year plan to increase its long term and specialized financing from Ffr 90 billion to Ffr 102.3 billion, as well as to increase its return on capital from ten to 15 percent. By this time, Financière Saint Dominique had evolved into one of the continent's major providers of investment capital, carrying five percent of the European market, and had achieved listing on the Paris stock exchange. However, Moody's Investors Service lowered its long-term ratings of the bank and its Interfinance Crédit National NV subsidiary from double-A-2 to double-A-3, citing the company's diversification into riskier ventures.
In 1992 the bank's Banque Saint Dominique subsidiary (acquired in 1987 as Banque CSIA) lost Ffr 85 million; it stock was delisted and its national and international trading activities were suspended while it was reorganized. However, one of Crédit National's other recent acquisitions fared much better; by 1991 Financière Saint Dominique held five percent of the European market, with investments totaling around Ffr 1.1 billion in 1992.
Crédit National continued its efforts to strengthen its presence in certain foreign markets, but avoided the eastern European market. In late 1992 the bank joined with Elettrofinanziaria Spa (Elfi) to purchase the newly privatized household appliance maker Thomson Electroménager, a former subsidiary of Thomson S. A. In order to effect the purchase, Crédit National and Elfi created a holding company, Brandt Electroménager, of which Crédit National retained a 34 percent interest. The purchase was concluded in January 1993, and the companies reportedly paid Ffr 2 billion for Brandt.
Crédit National's presence in the United States was represented by its subsidiary, ABM Corporation, a mortgage-backed securities trader. In 1992 the subsidiary's net income was $2.5 million, with $648 million in securities outstanding.
Principal Subsidiaries: Alfi Gestion (66%); Banque Saint Dominique; Dupont-Denant; Financière Saint Dominique.
Crédit National: 1919-1969, Crédit National, Paris, 1969.
Crédit National Annual Report, Paris: Crédit National, 1992.
"Crédit National Forecasts 7% Rise in Banking Income," Wall Street Journal Europe, June 10, 1992, p.12.
"Crédit National Group, Crédit National," Company Document, Paris: Crédit National, 1992.
Crédit National Records 9% Rise," Financial Times, p. 28.
Gay, Pierre-Angel, "Le Groupe Italien Elfi Constitue Sa Nouvelle Entité Brandt Electroménager," Le Monde, p. 22.
Graham, George, "Crédit National Advances Due to Rise in Activity," Financial Times, March 22, 1990, p. 33.
Source: International Directory of Company Histories, Vol. 9. St. James Press, 1994.