In the spring of 1999, Michel Pebereau, chief executive of Banque Nationale de Paris (BNP), gathered a dozen of his top bankers to propose an audacious plan to buy not one, but two rivals and create a French national champion.

It was a big gamble for the one-time top civil servant. Having overseen the state's sale of its stake in BNP , he now sensed an opportunity to create a dominant player by snapping up investment bank Paribas and retail rival Societe Generale .

It was a race to be the biggest, recalled one of the bankers present at the meeting.

Pebereau failed to win SocGen, but he got Paribas.

This served as a springboard for BNP's ten-year transformation into one of the world's largest banks with assets of around 2 trillion euros ($2.7 trillion), equivalent to about a year of French GDP, and a reputation as a risk-averse sector monolith that emerged from the 2008 financial crisis virtually unscathed.

More than a decade on from that meeting, a euro zone debt crisis rages and the 69-year-old prepares to step down as chairman on December 1.

BNP's size and its business model are no longer perceived as ironclad. Its shares are trading at half their book value after heightened eurozone fears this summer forced French banks into announcing sweeping asset sales.

And the once-widespread view of Pebereau as a banking Midas has been undermined by the possibility that BNP and its peers could be forced to take state funds as part of a plan to shore up Europe's banks, as Greece threatens to lurch into default.

BNP is like the Roman Empire. And the barbarians are at the gates, as one analyst puts it.

The threat to BNP Paribas also comes from within France, where the opposition Socialists, led by presidential contender Francois Hollande, have vowed to break up banks into retail and investment banking entities if they win in 2012.

That would effectively undo Pebereau's legacy, winding the clock back to the days when BNP and Paribas were separate.

Our so-called universal banks, supposedly defensive in stormy times, were the first to buckle during the crisis this summer, said Christophe Nijdam, an analyst with Alphavalue in Paris. Today we can no longer say that the universal banking model in France is bulletproof.

BNP and its domestic rivals have bloated trading portfolios and insufficient deposits, which entice them to rely on wholesale funding markets and expose them to the risk of a liquidity seizure at times of stress, Nijdam said.

Responding to these criticisms, BNP Deputy Chief Executive Jean-Laurent Bonnafe said in an email that the bank's wholesale funding was proportional to its short-term commitments, particularly in U.S. dollars.

He added: All the analyses conducted since the European stress tests (in July) indicate that certain banks do need to be recapitalized but this need is not a broad-based one.

A break-up of banks like BNP would not be an instant fix, but some investors say it would allow the investment bank to fail without forcing the government to protect retail deposits.

A split would not solve the current financial crisis, which is one of sovereign debt, but it would contain its consequences, said Fabrice Seiman, co-head of Paris-based Lutetia Capital.

Bankers in Paris say BNP isn't running scared yet. We're in an election season. Bashing the banks always goes down well, said Andre Levy-Lang, the former head of Paribas who quit after his bank fell into Pebereau's hands. Deep down (a split) is an idea that just doesn't hold water.

Critics say this attitude is Pebereau's legacy, both as the French banking establishment's chief patriarch and as a former top official at the Treasury.

Pebereau, while intelligent and dynamic, has contributed to a united front among the banks that has prevented a real debate about this in France, said Jerome Cazes, former head of French bank Natixis' credit insurance unit Coface.


Pebereau cuts an unusual figure for a man often painted as a puppeteer. His quiet voice, spectacles and short frame seem more appropriate to his 'other life' as science-fiction buff, reviewing books that imagine a nuclear war started by a mouse or a Sino-European federation fighting a new Ice Age.

As befits his image of banker to the nation, Pebereau sits on the board of top companies including oil major Total and Airbus parent EADS . Before becoming a banker he oversaw the privatization of the bank he would later lead. And in 2005, he was called upon to prepare a report advising the government on how to reduce its debts.

Michel Pebereau represents a very French archetype, that is, someone who is committed to the state while simultaneously heading a private company, said David Thesmar, professor of finance at business school HEC. That can sometimes lead to a questionable blurring of boundaries between private lobbying and defending the public interest.

A case in point for some was the 2008 financial crisis, when France had to rescue its banks, despite their strength compared with rivals in Britain or the United States. According to the Socialist head of France's parliamentary finance committee, Jerome Cahuzac, the BNP chairman successfully lobbied President Nicolas Sarkozy's administration to issue state loans rather than taking direct stakes in the banks.

The bankers didn't want it, most of all Michel Pebereau, and we know well his influence when it came to the decision by the president to allow an investment in banks' equity without demanding anything in return, Cahuzac told Reuters.

Responding to these claims, BNP's Bonnafe said: At the time France made this decision because it was the least risky for the taxpayer and all banks were in favor as they did not want to be associated with taking this kind of risk. These government interventions were made in exchange for commitments to finance the wider economy while boosting the public purse, which was not the case at other support plans seen in the U.S. or UK.

Former Paribas head Levy-Lang described his long-time acquaintance as very intelligent, very competent and very sure of himself, adding: He is not necessarily always right, but he always has a structured argument.


Some say the biggest obstacle to fundamental change is that the French universal banking model has yet to suffer the kind of major reputational damage seen at banks in Britain or Switzerland, where vocal support for a split -- or at least a ring-fencing -- of banking activities has grown the most.

Even taking into account issues with their size, their leverage, their exposure to highly indebted euro zone countries like Greece and blow-ups such as the 2008 rogue trading scandal at Societe Generale, French banks are still profitable.

One former BNP banker says that whatever the French banking system's flaws, the focus on keeping loan risk on the balance sheet and lending criteria tight -- exemplified by Pebereau and his disciples -- has helped prevent another collapse like that of Credit Lyonnais, which was rife with accounting scandals and reckless lending, in the early 1990s.

Even when BNP was threatened by slightly lax lending abroad, management put a stop to it, the banker added.

Banking historian Hubert Bonin says BNP and others were not alone in moving into areas like real-estate investment, insurance or specialized financial services. But he is skeptical about a Socialist break-up of French banks.

At most, there will be a report looking into the matter, he predicts. Perhaps even a Pebereau Report.

(Additional reporting by Geert de Clercq and Jean-Baptiste Vey; Editing by Alexander Smith and Simon Robinson)