French Nationalizations to Cost Over $7 Billion

After three months of discussion, the French Socialist government revealed on September 23 the terms under which it will nationalize certain French and foreign-owned companies.

A number of foreign firms did not wait for that revelation to announce their intention to pull out from partnerships in' the companies and banks to be nationalized.

"There is no question of keeping as partner a bank which is controlled by the French state," said Ira T. Wender, president of the fourteenth largest U.S. investment bank - A.F. Becker-Warburg, Paribas, Becker Inc. Paribas, a French banking and finance company with financial, industrial and commercial interests in 41 countries, owns 20 percent of Becker. Paribas also has a 30 percent share in the London-based investment bank, S.G. Warburg & Company Ltd., which owns a further 20 percent of Becker, and Paribas is due to be nationalized. "You don't take a foreign state as a partner, you do business with it," Wender said.

Wender is convinced that Paribas's days as the most successful and "aggressive" French finance bank are over. "Only capitalism can provide the commercial dynamism and punch needed to get to the top," he believes.

At Paribas in Paris, bank president Pierre Moussa has been orchestrating an international publicity campaign to convince the Socialist government of that very same point. A bank spokesperson told Multinational Monitor, "Our clients have made known that their response will be as radical as Becker's." Warburg in Britain and Sun Hai Kai, Hong Kong's largest finance company, have both announced that they intend to end their partnerships with Paribas, "unless," announced Warburg, "a more reasonable solution is worked out."

The solution proposed under the Socialists' nationalization bill is that the worldwide industrial interests of Paribas will be sold off, and since half the profits from Paribas's banking operations come from its interests in these uncooperative foreign groups, the government could be left controlling a much reduced institution.

For most shareholders, however, the nationalizations will prove lucrative. The government first proposed to pay compensation based on the share values on the stock market exchange averaged over the last year. Then the French Council of State, a conservative judicial body which advises the government on the constitutionality of its laws, called for indemnification to be based not only on share values but also on company profits and assets-all over a period of three years.

The cost to the French state of compensation was originally estimated to be 25 billion francs (approximately U.S. $4.55 billion), but under the Council of State scheme, this will rise to 40 billion francs ($7.27 billion) over a period of I S years.

Ironically, if nationalization had not been proposed, most of the targeted companies would have seen their share prices fall dramatically due to the current weak performance of the industries in which they operate. Under the new compensation scheme, shareholders will collect in some cases nearly twice as much as the value their shares had on the day before the election of Francois Mitterrand, May 10.

Still some foreign shareholders have complained. "We wish to be paid quickly at a fair price and in cash," declared Donald E. Frankenfield, president of Philadelphia International Investment Corporation, which has a 7.5 percent interest in the to-be-nationalized Banque Worms. Philadelphia International is a wholly-owned subsidiary of the Philadelphia National Bank, and it expects to recover the $4 million (representing 10 percent of its assets) that it paid for its share of Worms.

U.S. businesses are citing the terms of the 1959 Francs--American convention which guarantees "rapid, fair and cash compensation" in case of takeovers. James Pope, vice-president of Philadelphia International, told Multinational Monitor his company had had a "long, enjoyable and fruitful relationship" with Banque Worms, but that he could not see the firm's "entrepreneurial spirit" being sustained under state ownership.

- Philip Brooks