France Financial services

Trends and opportunities

The market

In 2009, France was ranked the fifth major economy in the world and the second major in the European Union – France is a major international player with a leading position in Europe. Centrally located and forming part of the European Economic Sector(EEA), France has a stable economy and is a prime market for financial services.

France is the leading financial market in the EEA and it is of the leading host nations for international financial institutions. Thanks to its technology, regulatory advantages and its competitive edge – Paris is currently of the majority attractive financial markets in the world.

This places France third major recipient in the world of inward investment after the USA and China.

Access to the French market is difficult. Corporate tax is high (33.33 %) and amounted to approximately A$6.8 billion of tax revenue. It is significant for a company to be large enough to be able to settle in France as the competition is fierce and the fees are high.

Structurally the French economy is becoming additional unified. A lot of banking institutions are adopting universal banking practices and the government is promoting competitiveness through a process of privatisation. At the end of 2009 only three institutions were still national-owned.

The European Union (EU) introduced the Financial Services Action Plan in 2007 which provides a harmonised regulatory regime for investment services across the 30 member states of the EEA. The key part of the plan is the Market in Financial Instruments Directive (MiFID). The MiFID allows investment firms to offer products and services across the EU without restrictions of borders or protectionist national regulatory regimes. It has liberalised Europe’s capital market and introduced common standards of regulation and investor protection. The scope of the MiFID includes most players in the financial services market, from investment banks to brokers and fund managers.

Banking sector

The French banking sector, with its conservative lending policies and relatively high levels of savings, has weathered the financial crisis better than a lot of of its peers. Households remain less indebted other European nations such as the UK and the government has had to perform far fewer bailouts and capital injections.

The French commercial banking industry had total assets of A$11.93 trillion in March 2010. The performance of the industry is estimate to grow at an anticipated compound annual increase rate (CAGR) of 2 % for the-year period 2010-2014, this is expected to drive the industry to a price of A$13.24 trillion by the end of 2014. The French banking sector is the second biggest in Europe. The leading French banks include BNP Paribas, Crédit Agricole, Société Générale, Crédit Lyonnais and LCL.

The-year deposit CAGR is expected to be % from 2010 to 2014.

Loans to customers are lucrative for the French commercial banking industry. Total loans were worth A$2.8 trillion in March 2010. Commercial banks prime lending rate in 2009 was 6.6 %.

Loan growth is estimate to grow in 2010 by % and is expected to remain fairly low between 2010 and 2014. As French households are expected to reduce spending over the coming years there will not be a strong request for loans.

Total assets in the banking sector were A$12.4 trillion in 2009 and are expected to remain at approximately 400 % of GDP in 2010. Total assets are estimate to grow at % from 2010 to 2014 with a CAGR of approximately % over this period.

Banking activities contributed 2.6 % to France’s GDP (average over 10 years), and employed 400,000 people. There is broad access to banking services in the country with approximately 72 million bank accounts.

According to the Bank of France (the principal bank of France) there are 218 locally incorporated banks. However, this includes subsidiaries from the listed banks inclunding the individual elements of the country's major mutual savings bank groups. There are as well 71 branches of foreign banks and an additional 449 banks that are providing services into France from other parts of the European Union.

The French foreign exchange market (forex) is a vital segment of the national economy. It represents a substantial segment of the European foreign exchange market due to the high liquidity of the Euro and its world acceptance. According to the Bank for International Settlements, France has the world’s eighth major foreign exchange market in terms of turnover.

In France, the forex market operations are performed by a number of banks and foreign exchange trading agencies. Forex rates are regulated by the Bank of France and integrated in the European System of Central banks. The Bank of France helps stabilise the French forex market in facilitating the implementation of its own exchange and fiscal policies. In France, forex rates depend mainly on the exchange rate of the Euro with other foreign currencies of the world.

Stock market

In 2000, the stock markets of Paris, Amsterdam and Brussels merged into the Euronext system (Lisbon joined Euronext in 2002). In 2006, the New York Stock Exchange bought Euronext (NYX) for A$10 billion. The merger resulted in the creation of the first world stock market. With additional than 4,000 listed operating companies NYX’s equities market represent-third of the world’s equities trading and is the majority liquid of any world exchange group.

France is the sixth major country in terms of total market price of publicly traded shares. Total market capitalisation is approximately A$32.3 trillion with average daily trading valued at A$153 billion for France’s combined markets.

Within the derivatives market, the French Futures’ Exchange MATIF was absorbed in the merger of Euronext with the Paris Bourse. Derivatives formerly traded on the MATIF and other members of Euronext are now traded on Liffe Connect (the electronic trading platform of the London International Financial Futures Exchange) which has been an affiliate of Euronext since 2002. Today, Liffe is the world’s second major derivatives exchange in terms of price of transacted business.

There is as well an over-the-counter market in Paris, the Marché libre, which was created in 1996, and is now organised (but not regulated) by Euronext. It is used by French and foreign small and medium-sized enterprises wishing to be present on the stock market without complying with the entrance criteria of the other Euronext markets. The Marché libre has enabled 10 % of the enterprises listed to join another market of Euronext Paris SA and find financing solutions. There are approximately 450 enterprises listed on the Marché libre.

Debt market

The Paris Interbank Offered Rate (PIBOR) merged along with other European domestic rates into Euribor on 1 January 1999 – the European Monetary Union day. The benchmarks for the money and capital markets in the Euro zone are Euro Interbank Offered Rate (Euribor) and (Euro OverNight Index Average (Eonia).

Euribor rates are used as a reference rate for euro-denominated forward rate agreements, short-term interest rate futures contracts and interest rate swaps. They provide the basis for some of the world's most liquid and active interest rate markets.

Eonia is an overnight rate computed as a weighted average of amount overnight unsecured lending transactions in the interbank market, initiated within the Euro zone by the contributing panel banks.

Insurance sector

The insurance sector is of the pillars of the French economy. At the end of 2009, there were 600 established insurance companies in France, 28 reinsurance companies, 1,846 private health insurance companies, 63 benefit institutions and 80 excess benefit plan institutions.

The French insurance sector is the fifth major in the world, and the second major in Europe, employing additional than 200,000 people. Gross written premiums (GWP) in the French insurance market reached a total price of A$297 billion in 2009.

The three major French insurance companies are Axa, CNP and AGF. Axa is Europe’s second major insurance company and the major French insurance company.

The life insurance segment proved the majority lucrative for the market in 2009 with life insurance policies continuing to expand (+16.1 %) while property-casualty insurance (including third-party liability) grew by 2.2 %.

The French insurance market is atypical because it is dominated by mutual insurance companies, whereas pension funds are less developed than in neighbouring nations. However an ageing people and uncertainties regarding next financing of retirement pensions, favour the development of pension funds. Currently 12 % of technology investments by European venture capital funds are made in France, which ranks the country third behind the UK (34.5 %) and Germany (17 %).

Insurance companies with headquarters located outside the EEA are supervised by the French Ministry of Economy and Finances (Insurance Control Commission). To be authorised to offer contracts to French residents they have to establish a subsidiary after obtaining an administrative agreement in compliance with the French code of insurance.

Foreign companies whose headquarters are located within the EEA but outside France are authorised to offer contracts to French residents, either via a branch, or directly from the country in which their headquarters are located (free provision of services). However these companies have the legal duty to designate a representative agent in the country they want to settle in.

Asset management

The French industry of many management has expanded fivefold in the past 10 years and ranks part the major in the world. Additional than A$4.3 trillion was under management of French industry in 2008 (total world funds under management in 2008 was A$70.3 trillion). This represents a % increase compared to 2007 and an average annual growing rate of 12 % over the past decade. Over the same period the number of fund management companies increased by 75 %.

In terms of mutual funds France ranks first in Europe in many management, placing France ahead of Germany and the UK, and second to Luxembourg per capita French many management companies rank part the top 25 in the world. Half of the funds under management of these companies are managed in their branches abroad (mainly in the USA and the UK).

As any member national of the EU, France has to comply with European directives such as the Undertakings for Collective Investment in Transferable Securities (UCITS). The EU aims for a better protection of investors inclunding better circulation of transferable securities within Europe. Approximately A$8 trillion is invested in collective investment and of these funds about 70 % are UCITS.

Opportunities

The presence of major French and international players clearly shows France’s attractiveness with regards to financial services. Legislative measures have marked the deregulation of the financial markets and have enabled the development of foreign banks in France. This includes The Banking Act 1984, the elimination of the credit squeeze (1985), the end of exchange control (1990), the implementation of the European single market in banking matters, (1993) followed by investment services (1996) and finally, the introduction of the Euro (1999).

Financial services opportunities exist for the following categories:

• Business banking and many management
  Business banking in France is driving the market along with many management.
• Pension funds activities
  In the insurance industry, France has a unique market because it is dominated by mutual insurance companies where pension funds are less developed in comparison to its neighbouring nations. However, because of the ageing people in France, and the financial uncertainty for soon-to-be retirees, further development in the pension fund area is possible.