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ABSTRACT: Large French banks have restructured over the last two decades responding to the evolution of the French banking system, European union integration, and globalization. Using financial time-series and cross-sectional data of three major French banks (Société Générale, BNP Paribas, and Crédit Lyonnais) from 1993 to 1999, this paper analyzes their performance. Our findings indicate that the French banks' performance (return on equity capital ratio) was influenced negatively by total assets, the efficiency ratio, the Tier-1 capital ratio, and loan loss provisions, but not at all influenced by non-interest income (contrary to our hypothesis). When the French banks were compared their global counterparts, common factors explaining the performance of these banks are efficiency and total assets in at least 3 of the 6 countries.
INTRODUCTION
Since the inception of global integration, competition in the financial services industry has intensified immensely. Few businesses have raced forward at a pace as swift as that pursued by bankers in taking advantage of worldwide financial deregulation and the rapid technological advance s of the 1990's. With deregulation removing barriers to entry and technological advances reducing the costs of managing affiliates in distant markets, banks have undertaken a strategy of growth by merger and acquisition to accomplish two objectives: (i) to defend a position within their domestic stronghold by merging with domestic competitors, thereby fending off potential foreign competitors, and (ii) to establish bridgeheads in foreign markets by acquiring interests in foreign institutions.1
While the extent of the industry's globalization through international acquisitions is debatable,2 what is evident is the full effect of deregulation and technological advances-mega-size cross-border mergers and acquisitions recently undertaken by multinational banks, such as Citigroup, UBS and Credit Suisse. The three largest French multinational banks - PNB Paribas, Société Générale, and Crédit Lyonnais - have pursued a similar strategy, expanding both their domestic and foreign markets. These large multinational banks now offer a full range of financial products and services, competing fiercely in both their domestic and global markets.
The advent of a single European Union currency, the "euro", has been the catalyst for change. Together with many regulatory changes allowing borderless banking within the euro-zone countries, the euro has forced European banks in particular to evaluate their extremely fragmented industry and relative inefficiency....