Henri Germain, a prudent banker of Crédit Lyonnais

The big money 4/6 The founding leader of the bank, created in 1863, will require that deposits finance only short-term loans. The precautionary principle that will guide its policy will allow the institution to escape the crash of 1882 and become the first global network.

Some companies know a singular destiny. Credit Lyonnais is of this vein. Its founder, Henri Germain (1824-1905), could have been content with an idle existence, like his father, a former silky Lyon living comfortably from his income. After law school and a very well-endowed marriage, Henri Germain leads a life of a dilettante. During this time, he multiplies the meetings which, later, will prove to be precious. The frequentation of the Saint-Simonian circle introduces him to the new means of financing the economy. Member of several boards, he has the opportunity to see the difficulties faced by companies to obtain credit. Over time, Henri Germain became aware of the shortcomings of the French financial system.

In the midst of the industrial revolution, this system is indeed dusty. On the one hand, the Banque de France grants short-term loans Novapalma 90 to industry and commerce. But to benefit, you need a solid signature, which does not run the streets. On the other hand, the Haute Banque (Rothschild, Hottinguer, Laffitte …) manages large assets. Its main activity is to invest government bonds and shares with wealthy clients. In this banking system, a major player is sorely lacking: no one is worried about harvesting small deposits and financing the fledgling industry. The trigger came in May 1863 with the law facilitating the creation of public limited companies. It is in this breach that will engulf Henri Germain by creating Credit Lyonnais, July 6, 1863. This bank proposes to drain the small savings by offering paid accounts. A revolution for the time.

A MODEL THAT FOCUSES ON THE BANKING SECTOR

Among the first shareholders are jostling historic Saint-Simonians, such as Paulin Talabot, Father Enfantin, Arlès-Dufour or Michel Chevalier, who is also a close adviser to Napoleon III. We also find silky and industrial Lyonnais, as well as bankers generous. Henri Germain, with 2,150 shares, owns just over 5% of the capital. The bank, which starts with 140 depositors, has 10,000 in its second year of existence. During a major advertising campaign, the establishment prides itself on achieving a “vast democratization of the credit that the gigantic Parisian creations have vainly promised France”. This new economic model is therefore imposed on the entire banking sector.

But from the beginning, the bank made the same mistake as its competitors: it immobilizes important capital in industrial affairs. Two of them will be particularly ruinous: the Gas Company in Spain and the dye company La Fuchsine. These bad investments jeopardize the balance of the bank. After these disappointments, Henri Germain retains the lesson. His bank will no longer invest directly in companies and will simply lend them in the short term, discounting their trade receivables. Credit Lyonnais is distinguished from other banking institutions by ensuring that the deposits are perfectly secure.

Henri Germain’s doctrine is based on the liquidity of the bank. Since resources are in the short term, in the form of deposits or vouchers, jobs must also be short-term in order to respond to any sudden unexpected withdrawal. Henri Germain is the first to have laid down this rule of conduct. But he sees further. To limit the risk, he created, in 1871, the department of financial studies. In the absence of a rating agency, this service scrutinizes the accounts of countries and companies to measure their solvency. At the Belle Epoque, it will have hundreds of employees. The entire organization of the bank is structured around the principle of prudence.

THE FIRST FRENCH BANK AFTER TWENTY YEARS OF EXISTENCE

The General Union crash on 30 January 1882 was followed by a massive withdrawal by savers. This race at the counters causes a division by two of the number of deposits. The boss reminds anyone who wants to hear it on March 31, 1882, that “demand deposits and current accounts must form a separate category, having, as an exact counterpart, cash and other resources immediately achievable”. In other words, the bank can meet its commitments to depositors. Credit Lyonnais out except this crisis, but the ball is spent ready. The historian Jean Bouvier describes the crash of 1882 as the event that “made on Henri Germain a very deep and very lasting impression”. Subsequently, the direction of the bank is formed “in the deep fear of” run “, the panic that throws customers to the wickets to withdraw funds.

This strategy pays off. The competing banks that lose feathers in hazardous speculation validate the choice of Henri Germain. Barely 20 years old, Crédit Lyonnais became the first French bank. The development continues in a well-established method: a survey is conducted, ancestor of market research, to be closer to its future customers. The network of the territory follows the development of the railway, source of business growth. The network already has 110 branches in 1882.

Twenty years later the bank has 257 branches. The number of employees increased from 439 in 1871 to 4,000 nine years later. The bank employs 16,000 people in 1913. Profits follow. Indeed, if deposits report little, their increasing number produces profitability that exceeds the competition. Henri Germain was pleased to say that “Mr. Everybody is richer than M. de Rothschild”. The facts prove him right. With a balance sheet of 1.7 billion francs in 1899, Credit Lyonnais becomes the largest bank in the world.

THE IDYLLE OF RUSSIAN LOANS

Another very profitable activity of the bank is to place directly with its customer’s stocks and bonds. The defeat of 1870 will also be an opportunity to make substantial profits through the issuance of Thiers (1872). The beginning of the 1880s was also the time when Crédit Lyonnais began to turn to Russia. This country, which wants to invest in infrastructure, has huge capital needs. Crédit Lyonnais has a very extensive network of customers. They have capital and they report less and less in France. The bank will then offer them Russian loans: this is the beginning of an idyll that will permanently mark French savers.

The prudence of Henri Germain is not limited to the strategy of his bank. His remarks remain current when he declares to his shareholders on April 17, 1874: “If we distribute excessive profits, we impoverish the social fund and opinion is deluded over the duration of these profits, the price of securities then rise without any plausible reason. ” Current leaders of large companies should be inspired …

To avoid a financial crisis, Henri Germain advocated the separation of deposit banks from investment banks. This will be applied by the US administration in 1933, the famous Glass-Steagall Act. This is also one of the promises of the candidate François Hollande which is awaiting the next concretization.