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(Last updated: 30 Sep 2008)
Trends and opportunities
Market overview
France was ranked the sixth largest economy in 2006; thus France is a major international player with a leading position in Europe. Centrally located and forming part of Euro zone, France has a stable economy and is a prime market for Australian financial services.
To the contrary, according to the European Commission’s figures, economic confidence has plunged to 89.5 points in Europe, representing the strongest decrease since 9/11. Despite this, thanks to its technology and regulatory advantages and its competitive edge, Paris is currently one of the most attractive financial markets in the world. It is the leading financial market in the Euro zone and France is the second leading host country for international financial institutions.
Furthermore, it is one of the leading destinations for Foreign Direct Investment (FDI). According to the Bank of France’s 2006 figures, France attracted a total of A$95.39 billion in FDI, ranking third behind USA and the UK.
Access to the French market is difficult. Corporate tax is high (33.33 per cent) and amounts for 17 per cent of the French Government’s taxation income (A$75 billion). It is also important 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 financial system is becoming more unified. Many banking institutions are adopting universal banking, and the government is attempting to promote competitiveness through a process of privatisation. At the end of 2007, only three institutions were still state-owned.
The European Union (EU) has set up the Financial Services Action Plan that should create a single market in financial services in Europe. 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 should liberalise Europe’s capital market while seeking to introduce common standards of regulation and investor protection. The scope of the MiFID covers most of the players on the financial services market, from investment banks to brokers and fund managers.
Banking sector
Banking activities amount for 2.8 per cent of France’s GDP (average for the last 10 years). There is broad access to banking services in the country including around 72 billion bank accounts.
On a stock capitalisation basis, six French banking groups rank among the first 50 in the world. At the end of 2007, 32 financing institutions and four investment companies were listed on the stock exchange. The four biggest French banking securities amounted to 9.1 per cent of the market’s capitalisation.
Additionally, there are 239 foreign banking institutions in France (161 licensed banks, 76 financial companies and two specialised financial institutions), 67 investment companies and 78 representative offices. Among the foreign banking institutions, 161 are European. Branches remain the preferred means for foreign banking institutions to have a presence in France – 151 of the 239 foreign banking institutions have them. Furthermore, foreign banking institutions represented 10.5 per cent of the whole balance sheet of all banking establishments in France. In 2007, foreign institutions’ banking activities accounted for 8.6 per cent of the total for the deposit-taking sector and 9.2 per cent for credit activities.
The French foreign exchange market 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 global acceptance. According to the Bank for International Settlements, France has the world’s eighth largest 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, which is the principal 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). This merger has enabled Euronext to become the second largest European stock market in terms of capitalisation and of listed companies, as well as the largest European stock market in terms of annual transactions (A$2,750 billion in 2001).
In 2006, the New York Stock Exchange bought Euronext (NYX) for A$10 billion, a merger that resulted in the creation of the first global stock market. Its market capitalisation amounts to A$27.3 billion. In May 2008, the average daily volume of transactions per day was 1.4 million, up 17 per cent compared to April 2007. NYX’s nearly 4000 listed companies represent a combined A$27.3 trillion in total global capitalisation, more than four times that of any other exchange group. As for NYX’s equity exchanges, they transact an average daily trading value of approximately A$169.6, which represents more than one-third of the world’s cash equities trading.
For 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 largest derivatives exchange in terms of value of transacted business.
There is also 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 per cent of the enterprises listed to join another market of Euronext Paris SA to find an adapted solution to their development.
The first negotiation of a security on the Marché libre is to be initiated and has to be made under the responsibility of one of the members of the regulated security market managed by Euronext Paris SA. There are currently 260 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 all overnight unsecured lending transactions in the interbank market, initiated within the Euro zone by the contributing panel banks.
Insurance sector
The insurance sector is one of the pillars of the French economy. At the end of 2007, there were 361 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 largest in the world, with a A$323 billion turnover in 2007.
Insurance companies with headquarters located outside the European Economic Area (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 asset management has expanded fivefold in the past 10 years, and ranks among the largest in the world. More than A$4,100 billion was under management of French industry in 2007, representing a two per cent increase compared to 2006, and an average annual growing rate of 12 per cent over the past decade. Over the same period, the number of fund management companies increased by 75 per cent.
In terms of mutual funds, France ranks first in Europe in asset management, ahead of Germany and the UK, and second to Luxembourg per capita. Five French asset management companies rank among the first 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 state 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 greater protection of the investors as well as better circulation of transferable securities within Europe. Approximately A$8 trillion is invested in collective investment and of these funds, about 70 per cent 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 asset management
Business banking in France is driving the market along with asset management. For these reasons, the Net Banking Income was increased by seven per cent in 2006.
- 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 countries. However, because of the ageing population in France, and great financial uncertainty for soon-to-be retirees, this favours a development in the pension fund area.
(Source: Invest in France) |