After nearly a year and a half of rumors that a Gulf-based bank was planning a buyout of Banque Nationale du Paris Intercontinentale (BNPI), the president of the Federation of Bank Employee Unions, George Hajj, confirmed the future sale of BNPI’s assets to Bank of Sharjah to form the new Emirati-Lebanese Bank. Union-management talks regarding the affects of the acquisition on BNPI employees went on for over a year, before breaking down on November 30, when BNPI employees began a general two-week strike against all bank branches.
A package BNPI offered to employees on December 12 ended the strike on a conditional basis. Management and union leaders continued to hash out details as workers returned to their jobs on December 13. Indemnity packages will be reviewed on a case-by-case basis with ceilings set for the total amounts for each person. The December 12 offer by BNP Paribas, BNPI’s Paris-based controlling arm, included six months of initial indemnity, based on an individual’s last monthly paycheck, followed by an additional month of indemnity for each year of service in excess of five years. The deal might save the bank’s operations in the short term, but questions arise as to why BNPI is following Bank of America, Chase Manhattan Bank, Nova Scotia, and ABN Amro out of the country.
Back to work
Judging by the employees returning to work, the November 30 strike was a success as BNPI’s offer to displaced employees increased over the two weeks. Negotiations were set to continue during the holidays. While the unions released an official statement in the Beirut daily an-Nahar on December 14 promising that workers will return to BNPI for the time being, to ensure that customers can conduct their banking during the al-Adha and Christmas holidays, the new ownership’s restructuring is bound to cause casualties among the ranks of BNPI staff. It is likely that some employees will find jobs within the Emirati-Lebanese Bank, but BNP Paribas hinted that only half of the new institution’s employees will be selected from former BNPI workers.
BNPI resumed normal banking operations on December 15. Some workers returned to their posts on December 13 to prepare the information systems after two weeks of gathering dust. On December 14, Bechara Fatti, a member of the unions’ leadership, said that, “BNPI employees cancelled the strike for clients during the holidays of al-Adha and Christmas, but negotiations are still going on.” Fatti also noted the progress of the negotiations and explained “there is positive movement to us from our president and next week we are going to continue the negotiations.”
While BNP Paribas has yet to formally declare the planned sale to Bank of Sharjah, the bank did issue statements in Beirut dailies on behalf of BNPI, assuring customers that BNPI will remain in the country they have served for 63 years. The announcement did not apologize for the strike or leaving Lebanon, but offered condolences only to customers whose business with the bank was harmed during the ongoing strike. In what was an obvious attempt to restore customer confidence in the bank, BNPI made no mention of its deal with Bank of Sharjah, saying only that BNPI would “not refuse the involvement of a partner within the framework of its development.” Even though BNPI has not issued public announcements detailing the planned sale, workers fearing losses in job security consider the ink dry on the deal. According to the details of the buy-out, Bank of Sharjah will own 80% of capital in Emirati-Lebanese Bank, with the rest remaining with BNP Paribas.
When asked about the compensation offered to BNPI employees compared to those from other fleeing institutions in recent years, including Bank of America, Chase Manhattan Bank, Nova Scotia, and ABN Amro, Hajj replied that, “The amount offered [to us] by the head office in France is not equivalent to what was paid by other banks that left Lebanon. So that is why we asked them to either remain in Lebanon and continue operations or to pay indemnity equal to what other banks paid when leaving Lebanon. Their proposal is very cheap.” However, the unions were willing to listen to the initial framework of a deal that would pay, for example, a veteran of 10 years six months of initial indemnity plus five additional months for his service in excess of five years, for a total payout of 11 months indemnity.
The roots of BNPI’s exit
Hajj has repeatedly called for BNPI to remain in Lebanon, noting its breadth of locations and the possibility that other, more successful operations may act as a hedge against losses in the country, which has seen numerous shocks to stability, including the July War in 2006 with Israel, the opposition’s sit-in at Beirut’s Central District, and the ongoing presidential crisis. Although Lebanese banking is continually cited as one of the country’s best industries, all the aforementioned problems have led to lower credit ratings, making some banks look elsewhere to establish themselves.
In November, Standard & Poor’s (S&P) rating service gave Lebanon a “B-” credit rating, a downgrade from the standard “B” rating the country has enjoyed. Most analysts attribute the lower score to the country’s weak governance, challenges to development and reconstruction after the 2006 war, and continued instability. All of these factors have hampered the capacity of Lebanon’s government to assure lenders that it is able to service its debt and cause worry for nail-biting creditors. The country’s uncertainty creates an unstable air for private banking operations. S&P last gave the country a “B-” during last summer’s war, but reinstated the firmer “B” after direct conflict ceased. For foreign banks, these credit ratings are more than just letters. A credit rating’s downgrade immediately affects the profitability of western banks as they must move money from operations into reserves to comply with international frameworks aimed at hedging against risk, including the Basel II Capital Accord.
Under Basel II, western banks operating in risky environments, as determined by credit ratings, must comply with the international banking standards upheld in the agreement, including increased capital allocation to reserves to hedge against risk-sensitive operations in the country. Credit ratings affect the capital requirements of all banks, within a group of 10 countries, including France, from which BNP Paribas directs its global operations. According to Basel II, banks must allocate capital along with the risk rating on bank assets, which are determined by credit ratings of various services, including Moody’s and S&P.
For BNPI, the minimum capital set aside to deal with risk is too high an opportunity cost when BNP Paribas could close the subsidiary operations and focus assets on another part of the globe, most likely in another country with a higher credit rating. In sum, BNPI is reassessing its operations in Lebanon and weighing the possible profitability in the face of such risks. Any decision taken will be one based indirectly on the domestic affairs of the country. By selling 80% of its operations in the unstable country, BNP Paribas is freeing capital and will use it to expand into other markets or consolidate market share in the 85 countries in which they have already gained a foothold.
Union leader Hajj agreed with the profitability thesis, but believed BNPI could save workers the stress of loosing their jobs, saying, “Yes, I believe they are gaining less, but they are still gaining money. They prefer to have less risk. That’s why they prefer to sell their shares and be in control of only 20% of capital. There is no other reason.”
Hajj believed that after two weeks of affecting banking operations, the strike continued to produce its intended results, especially the unflattering situation of not being able to offer all its services to customers. He acknowledged that, “It’s the 11th day and until now all the cashiers are closed and all the other activities in the bank are closed.” He believed the banks are taking a big responsibility because “the checks are sent only by clearing. They are not returning checks even if the account is closed or even if there are sufficient funds in the account to cover the checks. They are not operational at all. [And] it is not only compensation; all the other activities are closed [as well].” In addition to shaming BNPI’s operations, strikes were also planned at other locations in Lebanon’s capital, including the French Embassy and Banque du Liban, the country’s central bank.
A trip to BNPI’s main office in Beirut on December 11 certainly showed the marks of the strike on local customers, who have come to depend on the bank’s reputation for stability after operating for over six decades in the country. A handful of customers, both for personal and commercial banking, came and went through the lobby at Gibran Tueni Square. One disgruntled customer with established relationships in the bank, who wished to remain anonymous, believed the strikers should be considered “criminals”. He likened the strike to the closing of Intra Bank in 1967 and the stress it induced on his family and community.
The best BNPI can do?
Twelve days into the strike there was a glimmer of hope for worried employees who have waited for over a year as rumors persisted of an impending sale. Among a crowd of BNPI workers and union representatives, BNPI’s President Henri Tyan presented the latest offer from BNP Paribas in Paris. Unfortunately, Paris’ offer did not match the “protocol” of indemnity that most employees feel is their right. BNPI workers have pushed for a protocol similar to the deal ABN Amro sealed with its employees when the bank exited Lebanon. That bank offered employees 24 months of indemnity matching their last monthly paycheck. Longevity was also rewarded, with two months of extra indemnity granted for each year of work.
At BNPI, a deal seemed to slide away from the expectation of employees. On the morning of the strike’s 12th day, the discussion revolved around a plan to give employees six months of indemnity and an additional month for each year worked, but the deal Paris presented to the group gathering in Beirut immediately caused dissatisfaction. Tyan’s offer to the group later that evening was the initial six months of indemnity followed by additional indemnity of one month for each year after five years of service.
Both newcomers and veterans of the company showed their disappointment over the disparity between their package and those offered to ABN Amro employees. One employee evoked accolade from the crowd of his counterparts in clearly explaining the poor deal BNPI was offering employees.
In addition, the payout did not include standard end-of-year bonuses enjoyed by employees, who receive only 25% of their total package up front. The remaining 75% is paid a year later. Although President Tyan explained opportunities remained with the new bank, the workers still did not feel secure. One employee of 11 years expressed her dismay, calling the deal a fraction of the standard offered by other fleeing banks.
Nevertheless, on December 13, employees recharged BNPI’s main branch with a sense of vigor. Workers were working on computers, answering phones, and moving about the headquarters. An employee explained her package after 17 years of service, which includes six months initially plus another 12 months for her 17 years with BNPI, for a total of 18 months, if the deal goes through. She noted the union needs to work out the details with management, including ceilings on indemnities, but a more specific deal will be presented to employees after further union-management talks. The bank resumed business on December 15, after two weeks of closed operations, but prior to the resumption employees were already dusting off their cubicles in preparation for work. A lawyer with BNPI, Mireille Fayallah, explained that “employees can come and go as they usually do to use the information systems.”
Effect on locals and other banks
Other banks have left Lebanon in recent years. Most attribute the flight to domestic instability, especially the profitability issues of operating in a country with low credit ratings and higher capital requirements imposed by the Basel II accords, but the global banking climate itself has seen many mergers and acquisitions in attempts by banks to dominate market share. After BNPI’s exit, only four major western banks will remain in Lebanon, including HSBC, Société Générale, Citibank, and Standard Chartered. Sadly, one of Lebanon’s most consistent and strongest industries will appear weaker after Bank of Sharjah’s acquisition of BNPI. Looking forward, Hajj believes that “if the situation stays like this, I believe no western banks will remain here in Lebanon.”
