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Cetelem S.A. and its subsidiaries form the largest consumer credit group in France and hold a leading position in the European credit card market. The Cetelem group, which includes the company's wholly owned Cofica subsidiary, subsidiaries in Portugal, Spain, Netherlands, Belgium, Hungary, the Czech Republic, and Morocco, as well as noncontrolling stakes in participatory ventures with Cofinoga, Finalion, Finama, and others, is itself 66 percent owned by banking services group Compagnie Bancaire (which, in turn, is 46.6 percent owned by Compagnie Financière de Paribas). In 1996, the Cetelem group's portfolio of total loans managed reached FFr 49 million, contributing consolidated net results of approximately $1.4 billion.
As of the mid-1990s, Cetelem's most visible product was its Carte Aurora credit card. Carried by over 7.5 million people and accepted by more than 125,000 retailers across Europe, the Carte Aurora, first issued in 1985, had become Europe's largest credit card. Cardholders had access to traditional credit card revolving credit services, as well as ATM access through ATMs owned by the company's bank partners and through Cetelem's own ATM network. Carte Aurora was used primarily in France, which accounted for more than three-quarters of all Carte Aurora cardholders in 1996, but Cetelem had made strong moves into other European countries, particularly Italy, Belgium, and Spain. Through Carte Aurora, Cetelem also managed the credit card activities of several of France's leading banking institutions, including Banque Populaires, Paribas subsidiary Credit du Nord, and Caisses d'Epargne. In addition to these bank-branded Aurora cards, Cetelem offered private label Aurora credit cards, featuring the brand names of such large, French-based retailers as Carrefour, Conforama, 3 Suisses, But, Groupama, Conforama, and Darty. Together, branded Aurora cards accounted for more than half of all Carte Aurora credit cards in the mid-1990s. In addition to Carte Aurora, Cetelem began offering its own Visa card in 1996.
Although credit cards represented the most significant factor in Cetelem's strong growth since the mid-1980s, Cetelem had long provided consumer credit and financial facilities and services, arranging on-the-spot installment loans for consumer goods purchases through commercial point-of-sale channels, and offering credit, loan, financing, and other services through the company's network of 70 branch offices, through France's Minitel network, and, since 1996, through the Internet. Cetelem's products and services included equipment loans, housing credits and home improvement loans, personal credit lines in addition to its credit card services, and insurance and savings products. The company also carried out consumer spending and market research studies. Through its subsidiaries, Cetelem also offered vehicle financing services. Cofica, the group's largest subsidiary, offered point-of-sale financing for automobile purchases. Cofica products were offered by more than 7,000 car dealerships in France in the mid-1990s, and the subsidiary also had direct loan partnership agreements with several car manufacturers, including Mazda, Nissan, and Volvo. In addition to Cofica, Cetelem's vehicle financing activities were conducted through its Cofiparc and CMV subsidiaries. Cofiparc specialized in financing vehicle fleets for small and mid-sized business; CMV arranged financing for vehicles for the healthcare professions.
In 1996 Cetelem was led by chairman Marc Mangenez, who replaced former Cetelem chairman Bernard Mueller after the latter was named chairman of parent Compagnie Bancaire. In addition to Cetelem's consumer finance activities, Compagnie Bancaire operated as a holding company offering business equipment financing through its UFB Locabail and Arval subsidiaries; housing and property finance through UCB; property investment and development and shopping center management services through Klépierre, Klécentres, Simvin, and Ségécé; life insurance through its Cardif subsidiary; savings plans, investment products, and stock brokerage services through Cortal; and "branchless banking" services through Cortal and through Banque Direct, the company's full-service retail bank-by-phone banking subsidiary. Each of Compagnie Bancaire's primary subsidiaries operated as independent companies; the parent company's involvement was chiefly in raising capital and coordinating the financing of its subsidiaries.
In December 1996, Compagnie Bancaire, faced with losses on its property loans and development portfolio, sold off 6 percent of its stake in Cetelem. The sale, which raised FFr 1.5 billion, reduced Compagnie Bancaire's control of Cetelem from 72 percent to 66 percent.
Pioneering French Consumer Credit in the 1950s
Compagnie Bancaire's origins traced back to the post-Second World War years, when Jacques de Fouchier began setting up a series of businesses specializing in funding small companies overlooked by the larger French banks. Never a "brick and mortar" bank itself, Fouchier's company, which incorporated as the Compagnie Bancaire holding company for its subsidiaries in 1959, avoided establishing retail-style savings and checking accounts and instead financed its activities on the capital market. The banking company's focus settled on lending, instead of on managing deposits, and its banking products were sold through associations with retailers, through direct marketing, and through partnerships with other banks, rather than through a capital-intensive network of branch banks.
After creating the UCO housing finance arm in 1951, the parent company's primary interest in lending led to the formation of Cetelem in May 1953. Cetelem, or "crédit à l'équipement des ménages," concentrated on providing credit for the electro-household market (e.g., appliances, furniture, etc.) as France's economy recovered from World War II and entered what became known as the country's "thirty glorious years" of economic growth. By the end of the company's first month in existence, it had registered and financed its first account, using early perforated-card computing systems. In the mid-1960s, the company upgraded its operations completely to fully electronic computer systems.
In 1965, Cetelem introduced France's first credit card, called Le Crédit en Poche. Widespread adoption of credit cards, which were finding ready acceptance in the United States, would come only much later to France. However, by 1966, Cetelem had grown sufficiently to go public, listing on the Paris stock exchange. Three years later Compagnie Bancaire safeguarded its--and Cetelem's--independence when it agreed to sell a 48 percent stake in the holding company to French merchant bank Compagnie Financière de Paribas. Included in that agreement was a provision that Paribas would not attempt to raise its share of Compagnie Bancaire.
Cetelem, buoyed by the strong French consumer goods market, grew rapidly through the 1960s and 1970s, establishing a network of branch offices that supplemented its retailer-based loan financing transactions. The company also began selling the life insurance products of another Compagnie Bancaire subsidiary, Cardif, formed in 1973. Meanwhile, Cetelem paced its growth and its product structures and development on developing trends in the French consumer market, particularly the company's core household products sales market. Cetelem began conducting consumer research, becoming a respected source of information on consumer buying trends and spending habits. In the 1970s, the company also installed credit reporting facilities, enabling it to reduce its bad credit risk. At the same time, the company moved into automobile financing through its Cofica subsidiary. In 1978, the diversification of Cetelem's activities led to the company being accorded banking status by the French government.
Building Credit in the 1980s
As the 1980s began, Cetelem, which by then had captured 30 percent of the French consumer loan market, responded to emerging trends in consumer spending by reentering the credit card market and by developing new structures to support its consumer products financing activities. In 1982, the company formed the first of its partnerships, called Cofidis, with catalogue retailer 3 Suisses, introducing the Quartre Etoiles ("four stars") for use by 3 Suisses customers. The following year Cetelem--which received the bulk of its new business from clients who either walked into a Cetelem branch office or applied for financing over the phone--launched a new system for receiving and evaluating loan and credit applications. This new system took advantage of the French government-sponsored Minitel videotex system. The Minitel network, introduced in the late 1970s, was accessed by users through dedicated modem-based terminals connected to their home and business phone lines. Minitel represented a pioneering system that, unlike the U.S. government-built Internet, was designed for individual and commercial access. By the middle of the decade, the Minitel terminals, distributed free of charge, with low monthly lease charges, and, at least initially, with few access charges, were present in more than 1.6 million French homes.
Recognizing the potential of this network, Cetelem became the first consumer loan firm to offer its services through Minitel. In 1983, the company began pilot-testing its system, which allowed its customers to apply for credit financing and quickly receive approval or denial responses through Minitel terminals based at participating retail stores. The process, which consisted of answering a series of eight questions, was entirely automated through the approval process. An approval would take a matter of minutes, with contract documents outputted to dedicated printers attached to the terminals. The cost of implementing the system was relatively low. Since the Minitel system already existed, Cetelem avoided the infrastructure costs of building a similar network system. Participating retailers, meanwhile, were required to pay only about $80 for the Cetelem printer.
The Minitel system proved to have a dynamic effect on Cetelem's growth. Within two years, the company saw its market share rise to 40 percent, solidifying its position as the premier French consumer finance company. By 1984, the company's total loan volume had reached FFr 19.3 billion, generated from more than 2.2 million individual accounts and providing the company with FFr 240 million in net earnings. Acceptance rates provided by the automated system reached 85 percent, yet the resulting bad debt rate remained on par with Cetelem's traditional walk-in customer accounts. Within five years of implementation, the Minitel system accounted for more than 80 percent of Cetelem's retail business and 40 percent of its revenues. By 1985, however, Cetelem's competitors, forced to respond, introduced similar Minitel-based systems, blocking Cetelem from further market share gains. Nevertheless, the company continued to hold 40 percent of the market.
As successful as the Minitel venture was for the company, Cetelem was already preparing several more successful ventures. The company expanded operations beyond France for the first time in 1984 with the establishment of the company's Findomestic subsidiary in Italy, and in 1985 it formed the joint-venture S2P with Carrefour, one of the country's top retailers, to offer the Pass credit card to Carrefour customers. The next year Cetelem introduced to the French market what would become its flagship product into the next decade: the Carte Aurora revolving credit card.
The Aurora card quickly established itself as the premier credit card in a market that had to that point experienced a relatively low penetration, compared to the rapid growth of credit cards in other markets, such as the United States. By 1988, Cetelem was already celebrating the opening of its one-millionth Aurora card account. Much of Aurora's growth came through the company's co-branding strategy, which introduced the Aurora card under the brand names of retailing and banking partners, such as its agreement with retailer Conforama in 1987 and its formation of Novacrédit with la Bred and BPOA in 1988. The Aurora card helped raise the company's net profits to FFr 421 million for the year.
The company also extended the Aurora card outside of France by establishing its Fimestic subsidiary in Spain and its Fimaser subsidiary in Belgium in 1988. The following year, the company formed a joint venture with Dutch bank AMRO and attempted to bring a version of the credit card to Holland. That country proved a more difficult market to enter because of the widespread popularity of the Dutch giro clearing system, and Cetelem was forced to withdraw from the partnership in 1993. Cetelem's hold on the credit card market was briefly challenged by the introduction of credit cards from France's far larger banking institutions. These attempts failed, however, because the banks neglected to fully use credit scoring strategies, resulting in excessive bad debt rates.
Expanding Partnerships in the 1990s
Cetelem entered the 1990s under a series of partnerships that would firmly establish the Carte Aurora as the nation's leading credit card. In 1989 the company created L2F with the giant Galeries Lafayette retailing group; also in that year, the company formed Finama, a partnership with Groupama. The following year But, a leading electro-household retailer, joined the Aurora group, offering the credit card under the brand name Boom-Boom But. The company's net profit continued to rise, reaching FFr 664 million in 1991, despite--and even possibly because of--the European entry into the worldwide recession of the early 1990s.
Cetelem continued to build its network of partnerships during the first half of the 1990s. In 1993, the company paid an estimated FFr 700 million to purchase 49 percent of competing credit card company Cofinoga, which had been acquired by Cetelem's Galeries Lafayette partner when that company acquired Nouvelles Galeries in 1991. As part of the purchase, the L2F joint-venture was merged into Cofinoga's operations. That same year, Cetelem brought in the first of its banking partnerships, launching the Satelis-Aurora card with Caisses d'Epargne.
In 1992, Cetelem entered Italy, which quickly proved a strong market for the Aurora card. By the end of that year, the company's outstanding loans portfolio had reached FFr 55 billion, generating FFr 755 million in net profit. The following year, Cetelem spread its credit card network to Portugal. On the French market, the company reached an agreement with Ecureuil for the savings bank to offer the Aurora card through most of its 31 regional branches. In 1994, Cetelem further enhanced its position among the French banking industry by reaching agreements to launch Aurora cards through two of the country's largest banks, Banques Populaires and Crédit du Nord. By the end of that year, over 5.8 million Aurora cards had been issued; France accounted for some 4.5 million of the cards, and Belgium and Italy represented the bulk of the remaining cards. Cardholders were able to use their cards in any of the three countries, and would soon be joined by the some 900,000 Carte Aura cardholders in Spain. The company also began preparations to expand its credit card and consumer credit businesses into Turkey, Morocco, and Hungary.
As the French credit card market neared saturation by the mid-1990s, Cetelem began concentrating on increasing the value-added services of its flagship Aurora card. Working with its banking partners, the company began offering debit and ATM services, enabling it to compete with the popular Cartes Bancaires deferred-debit cards offered by many of the French commercial banks. Cetelem also began issuing business credit cards and launched its own Visa card in 1996. In March 1997 Cetelem formed a joint venture with Belgium's CGER-Banque/ASLK Bank to offer a new form of the Aurora card, which offered all of the traditional services of the credit card as well as ATM access and account management services. Meanwhile, Cetelem could look forward to the coming unification of the European monetary system and the introduction of the Euro. That event, scheduled for 1999, was expected to enhance Cetelem's and its Aurora card's international appeal.
Principal Subsidiaries: Cofica; Cofica Bail; CMV; Cofiparc (95%); Arval (50%); Effico; Credial; Sofracem; Fidem; Cetelem Immobilier; Cetelem SFAC (Portugal); Banco Fimestic (Spain); Cetelem Benelux (Netherlands); Cetelem Belgium; Magyar Cetelem Rt (Hungary; 50%); Cetelem Czech Republic (50%); Attijari Cetelem (Morocco; 50%); Cofinoga (49%); Finalion (49%); Finama (49%); S2P (40%); Facet (39%); Novacredit (36%); Finagroup (Belgium; 40%); Findomestic (Italy; 38%); Cofidis Hispania (Spain; 15%).
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