Christian Noyer: European financial markets - opportunities for growth and
value creation
Speech by Mr Christian Noyer, Governor of the Bank of France, at the First French-Indian Financial
Forum, Paris EUROPLACE, Mumbai, 16 May 2007.
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Ladies and Gentlemen,
In the absence of Mr Mestrallet, Chairman of Paris EUROPLACE and CEO of Suez Group, who
cannot be with us today because of last minute commitments that require his presence in France, I
have the great pleasure of welcoming you to our first French-Indian Financial Forum in Mumbai.
India's rapid economic growth in recent years makes it an attractive investment destination for
international investors. And the economic revival in Europe also offers interesting opportunities to
Indian investors and issuers wishing to diversify their investment strategy. That's why Paris
EUROPLACE believes that we all have a common interest in attending this forum today to discuss
business opportunities between European and Indian Financial Markets.
I would like to express my warm thanks to my friend Dr. Rakesh MOHAN, Deputy Governor of the
Reserve Bank of India, for being with us today. We are also very honoured to welcome Mr Ashok
WADHWA, Chairman, Capital Markets Committee of FICCI, the partner of Paris EUROPLACE in the
organization of this forum, Mr Ravi NARAIN, Managing Director and CEO of the National Stock
Exchange of India Ltd and Mr Peter KURIAN, Chairman of the Association of Mutual Funds in India,
as well as all the other distinguished representatives of the Indian and French financial communities.
As you may know, Paris EUROPLACE brings together the whole range of market participants -
issuers, investors and intermediaries - in order to contribute to the development of European capital
markets and promote the Paris financial center.
The financial industry in India, as in Europe, is expanding significantly. And we have already seen in
the past few years the flourishing of partnerships between French and Indian financial institutions:
such as in the asset management industry, the joint venture between Sundaram and BNP Paribas
Asset Management, or the SGAM and SBI Mutual Funds partnership; in insurance services, the Bharti
and Axa Life Insurance partnership, and the joint venture between SBI Life and Cardiff; and in online
brokerage: current developments involving Cortal Consors and Geojit.
It is for this reason that it was decided by Paris EUROPLACE to focus our program on the
development of opportunities and potential new partnerships between Mumbai and Paris, as well as to
review how the expertise of the Paris financial marketplace can be used and leveraged.
Let me highlight the following questions:
- Why has the European financial market become a major pillar of international finance?
- And what are the key advantages offered by the Paris financial market place?
1. First, why has the European financial market become a major pillar of international
finance to compare favourably with the other large markets of the world?
Today, Europe consists of 27 countries representing a market of around 500 million consumers: the
largest domestic market in the world in terms of purchasing power.
The acceleration of the integration of European financial markets has radically transformed the
international financial environment. All activities are concerned.
Regarding bond markets, European debt instruments issued in euro on international markets are
now quite comparable to those denominated in dollars. If we take into consideration bonds issued on
external markets by "non euro area resident" companies, foreign governments and multilateral
institutions, we can observe that in 2006, total issues of international bonds and notes in euro
represented an outstanding of an equivalent of 1,200 billion (USD) against 1,000 billion (USD) in
dollars.
This fact shows that the euro market has grown considerably since the beginning of the 2000s and
today constitutes for corporates and governments a vast, safe and liquid source of funds, wider than
that of the US dollar.
While the US dollar remains dominant as an international reserve currency (65% of international
official reserves against 24% for the euro), bond markets have become bipolar with the euro playing a
leading role.
European equity markets have constantly developed since the 80s although they remain
smaller than those of the United States.
In terms of ratios of market capitalisation to the GDP of the countries, euro area equity markets
represented 55 % in 2005, while those of the United States amounted to 105 % and Japan to 85 %.
However, the euro area equity market has been growing progressively at an average rate of 10% per
year, since 1999. The share of equities in European investment funds has increased by 3 points since
2002 and amounted to 27% in 2006, while the proportion remained stable in the United States at 45%.
As regards asset management, we observe that since the launch of the euro in 1999, Europe has
caught up the United States in terms of the world-wide distribution of investment fund assets. The
United States and Europe hold the largest market shares in the world, at 50% and 33% respectively.
2. In this context, what are the key advantages offered by the Paris financial center as a
market and a services provider ?
The recent launch of the euro has given a big boost to our financial center and leveraged our
structural strengths: concentration of headquarters of big companies, innovative entrepreneurial
development in fund management (fixed-income and sophisticated guarantee funds) and strong
knowledge of mathematical finance, that is the base for French leadership in derivatives and
riskbased models. Innovation and expertise had and still have for the future a very positive impact on both
the bond and equity markets. Consequently French investment banks are very well ranked in
European activities.
Paris has taken a major position in the recent developments of the euro-denominated bond
market:
The French government bond market is today the most liquid in the world after the US treasury
market, with an outstanding of € 900 billion, and has a strong innovative strategy: let's mention the
launch of a range of index-linked products to European and French inflation, or the introduction of a
50-year OAT bond, which represents the new frontier of the euro fixed-income market.
The French corporate bond market is the largest in Europe, with an outstanding of €250 bn, compared
to €180 bn in London and €85 bn in Frankfurt.
Most recently, we have seen strong growth of structured and synthetic products. The new legislation
concerning the French covered bond market boosts this market compartment, which represents today
an outstanding of €160bn.
On the equity side, Euronext has been ahead of London and Frankfurt in terms of transactions since
2006. The new alliance between NYSE and Euronext creates the world's largest exchange in
terms of market capitalisation (€25 trillion), the world's largest liquidity pool, with a daily
average trading volume of €78 billion, & the world's premier listings venue, with the presence
of 80 of the top 100 companies listed world-wide, etc.
This alliance marks a new era in the global consolidation of financial markets, with its stocks traded
continuously for 13 hours a day on two continents and offering corporate issuers and international
investors the opportunity to deal in two of the world's major currencies, the US dollar and the euro.
French banks today have a leading position in equity derivatives markets, with more than 25%
of the worldwide market. New opportunities have arisen in this sector, with the development of the
Asian instruments, which are still at an early stage, as well as products related to environmental and
sustainable development issues. The French expertise in these markets is based on a strong
education in mathematics and finance that leads to excellence in financial fields and a large pool of
academic talent. In this chain of services, French banks are able to propose an end-to-end secured
service based also on their leadership in post-trade and securities services.
These market-driven services are reinforced by a strong and innovative "buyside" coming from
the good position of the French asset management industry. Quality of services in the asset
management industry is another key opportunity for international investors. Assets under
management have tripled over the past ten years and consequently the French asset managers have
built up a strong and global network and position Five of the largest French firms now rank among the
top 25 asset management companies in the world, operating worldwide including in new fast-growing
markets in Asia. The assets managed by their foreign subsidiaries are estimated to be worth more
than €1 trillion, adding to the €2.5 trillion euro managed out of Paris.
Finally, with regard to the regulatory aspects, and to meet international requirements, France
believes that regulation is a major competitive driver. First because trust, investor protection and
market robustness are essential and, second, because the regulatory process and better regulation
principles are worked out to accompany financial innovation in accordance with prudential principles.
Our regulators are taking driving initiatives to harmonise the European regulatory framework and
facilitate the integration of the European financial market in order to increase its critical mass and
therefore its efficiency even for non-European investors and issuers. That is why also the French
market is continually being upgraded to the highest standards of ethics and corporate governance so
that French companies comply with best international practices.
Ladies and Gentlemen,
As we can see, globalization and structural changes are driving all of us to conduct business in a
different way and offer new and major opportunities, especially through the development of
crossborder activities.
In this context, Paris EUROPLACE is a key player at the European and global level and the Paris
financial center currently offers the best opportunities and environment to invest in Europe.
Let me conclude by mentioning that Paris EUROPLACE is today launching a financial services cluster
dedicated to financial innovation and the development of new value added projects between academic
research and industrial companies with the participation of market professionals, universities and
research centers.
This new project could be another opportunity to develop new added value projects and partnerships
between Paris and Mumbai, in both financial research and new business opportunities, as we know
that the Mumbai financial centre aims to become a world financial cluster. The Paris financial
marketplace today offers to initiate closer cooperation and develop joint programs with the Mumbai
financial center.
Thank you very much for your attention.