PARIS -- European banks are well known for preferring low profits to high risks.
Talk to Charles de Croisset, chairman and chief executive of Credit Commercial de France, and the cultural differences between U.S. and European banking become readily apparent.
"You could say our profitability is mediocre compared to U.S. banks," he admits. "But the corollary is, we do have stable long-term profits and we don't have big losses."
The French banker is probably better placed than most to appreciate different approaches to banking. Born in New York to one of the city's oldest banking families, his maternal great-uncle was no less than William Woodward, who in 1910 succeeded James T. Woodward as president of Hanover Bank. The forerunner of Manufacturers Hanover subsequently merged with Chemical Banking Corp.
Not that Mr. de Croisset's family legacy gives him any extra room to maneuver. France, he notes, has long been dominated by a handful of big banks, and maintaining a competitive edge is hardly a foregone conclusion.
Interest margins have been declining for several years, while the cost of funding has been steadily going up, he says.
High provisions for bad real estate lending have also eaten into earnings, and the heavy hand of the French government can make banking in France a high-wire act in diplomacy.
Independent analysts readily agree with Mr. de Croisset's conclusions. "French banks have struggled with profitability for several years, due to competitive pressure on lending rates and rising funding costs," says R. Scott Bugie of Standard & Poor's Ratings Group in a recent analysis.
"The recession, and in particular the slump in commercial real estate and problems in middle-market companies, has undermined the banks' efforts to restore profits despite a collective effort since 1991 to improve operating margins."
Observes Sasha Serafimovski, a banking analyst with Merrill Lynch in London, "It's a very political banking system."
All that, says Mr. de Croisset, makes France a rather unattractive market for foreign competitors. And that suits him just fine.
"We have a market that's difficult to enter and more profitable in the long term than in the short term," he says. "High profits bring in competitors."
Compared with other banks, Credit Commercial de France, or CCF, has done relatively well and is one of the few banks worldwide that can boast an uninterrupted improvement in earnings every year since 1982.
As the smallest of the eight banks that dominate France, Credit Commercial de France ranked 100th in the world, with nearly $54 billion of assets at yearend.
Headquartered in an imposing Belle Epoque building on the Champs-Elysees, CCF closely resembles some medium-size, privately owned German or Swiss institution that focuses on corporate and private banking.
Unlike big French banks, which are still largely run as retail institutions, CCF goes after a much narrower and more tightly controlled range of business. It covers retail banking for high-net-worth individuals, merchant banking, international private banking, and fund management.
"We're more selective, and we've done relatively well during the recession," Mr. de Croisset observes.
The bank earned nearly $203 million last year, up 10% from 1993 and equal to a 10% return on equity.
The improvement in earnings came despite a 30.5% rise in the provision for loan losses, to $280 million, and derived mainly from capital market operations and fund management.
"They've done an amazing job," says Mr. Serafimovski. "Profits have grown every year in excess of 10%, and that's a pretty good show when France has gone through one of its heaviest crises in recent years."
Lehman Brothers analyst Sheila Garrard, based in London, agrees. CCF has given "a credible performance in light of the recession in France and the results of the rest of the sector," she said.
But if CCF has looked after its own interests relatively well, it hasn't gained many friends in France. The bank, for example, has been criticized for imposing some of the highest charges in France for bad checks.
It has also declined to do business with companies that have less than $15,000 in capital. And, it quickly and regularly rejects customers with small accounts.
"We're not a mass-market bank," Mr. de Croisset says unapologetically. "We do business with middle-income and upper-income customers, medium and large companies, and institutional investors."
Analysts say the results justify CCF's policies. "The strategic focus on a limited number of core businesses has been successful," said Ms. Garrard of Lehman Brothers.
"Other than the beneficial impact of the expected decline in commercial banking provisions, future earnings growth is likely to come principally from corporate finance, funds management, and private banking activities," she added.
Mr. de Croisset himself predicts earnings will improve this year and next mainly from a reduction in risks. But analysts remain divided over whether CCF has any real room for growth.
Although some agree with Mr. de Croisset that CCF's earnings will improve as costs and loan-loss provisions fall, others, like CS First Boston, predict that earnings will remain flat as a result of an ongoing slump in lending and trading revenues.
But Mr. de Croisset counters that he has ample room for expansion, especially in international investment banking and fund management.
The bank is also growing in Europe by striking selective alliances with other institutions. In February, for example, CCF and Germany's Berliner Handels-und Frankfurter Bank jointly acquired 45% each in Charterhouse PLC, the British merchant bank. The French and German banks are working to develop a common strategy for European corporate finance.
CCF is also planning to join the IBOS Interbank On-line System, an international electronic cash transfer network that First Fidelity Bancorp joined in July.
Going further afield, CCF has this year finalized its acquisition of Bank of Montreal's Brazilian subsidiary, a $1.6 billion-asset bank.
Elsewhere, CCF is developing international private banking in locations such as Switzerland, Luxembourg, Monaco, Nassau, and Hong Kong.
Meanwhile, the bank's New York branch is being used mainly to assist wholesale corporate clients.
Despite CCF's lengthening tentacles around the world, Mr. de Croisset has no illusions about turning CCF into a global megabank.
"We're a French bank with a European ambition," he says.
Returning to the long-standing caution that has kept CCF out of the red for more than a decade, he declines to aspire to anything greater, even as Europe's banking and financial markets look forward to a single currency.
"When your market changes size, the most important thing is to become stronger, not bigger," he says.
