EADS bank plan would offer safe port in stormy times

Fri Jun 8, 2012 10:53am EDT

* Airbus parent would get ECB access to deposit and borrow

* Company says idea under study, no final decision

* Decade-old plan first seen as move to counter GE

* Plan would give EADS new option to manage cash

By Christian Plumb and Tim Hepher

PARIS/BEIJING, June 8 (Reuters) - By thinking of applying for a banking licence, EADS is dusting off a plan once designed to make it look as powerful as U.S. behemoth General Electric Co - but which in today's crisis just looks attractive as a way of safeguarding its cash.

Departing Chief Financial Officer Hans Peter Ring surprised European finance and industry last week by floating the prospect that the world's second largest aerospace group could transform itself into a bank. The reason? The Airbus parent is now more creditworthy than some of its crisis-hit lenders.

The move signals a potentially wrenching new phase in Europe's financial crisis as EADS becomes the latest major industrial company to consider ways of shielding itself from accelerating financial turmoil.

"In my view it's primarily counterparty risk," said one Paris-based investment banker speaking on condition of anonymity. "If the whole world collapses, legally speaking, if it's at the ECB (European Central Bank) it's safe."

"If it's in some funds set up by a bank and the bank is weak, sometimes you have a risk," he added.

Such a plan would also follow in the footsteps of engineering companies such as Siemens, whose banking licenses have allowed them to tap the ECB's low-interest loan programme directly.

In general, as long as a company has a banking license and is an eligible counterparty, the ECB would allow it to deposit funds with the central bank and allow it to access funds as a borrower -- including any future cheap cash injections like those offered to banks earlier this year. In extreme cases the ECB can turn banks away, if it decides to do so.

In addition, such a license, which analysts say would be relatively easy to obtain, could help clients finance purchases of its planes, although there are few signs as of yet that help from Airbus is needed.

Some French banks have pulled back from aircraft financing after a dollar funding crunch last summer, but the difference has so far been mostly made up by U.S. and Asian banks.

DIRECT ACCESS

"Broadly speaking the French banks, having had a perhaps greater role have in effect pulled back to having the normal weighting," said Jefferies analyst Sandy Morris. "The idea would be to have a bank as another weapon in the armoury if needs be."

EADS has a problem many companies would love: an 11 billion euro ($13.82 billion) net cash pile - which has grown as airlines have put down deposits to secure more fuel-efficient next generation jets - that it has to manage and safely invest.

EADS and Boeing have both been mostly immune to airline industry woes which may overshadow a big industry summit in Beijing this weekend.

"This is simply a wise and prophylactic move," said Barclays analyst Joseph Campbell. "This will give them direct access to the ECB."

He added that Franco-German-led EADS also relies on banks to hedge its currency risk - the company said last month that it has a hedge portfolio worth $80.3 billion.

Newly named Airbus Chief Executive Fabrice Bregier, who is also a member of EADS' executive board, said on Friday that the idea of a bank was "under study" but that no decision had been made.

"In any case, it wouldn't be used to support very short-term operations, notably financing aircraft sales," he added in a radio interview. "For that we have access to the traditional financial markets."

The idea of getting a bank license has been floating around for at least a decade at EADS. Shortly after it was founded in 2000, top executives debated whether it was needed to create a European titan in the vein of GE.

The U.S. conglomerate's massive GE Capital arm helps it finance the sale and lease of Airbus and Boeing Co jetliners as well as financing and leasing its own jet engines as well as rivals'.

"In those days, the rationale was 'we are more powerful for customers if we have a bank' and 'isn't that part of GE's success?,'" one source who closely monitors the company said. "Now today it is probably more to do with whether EADS has enough trust in the banks and what is the future it sees."

Its U.S. rival also has a finance arm, Boeing Capital Corporation, although it "tends to operate as a finance facilitator, putting together sources of finance for customers," according to RBC analyst Robert Stallard, who added that it did very little direct lending.

CHANGE OF HEART

While EADS executives were said to have been intrigued with the idea because a financing arm would offer cheap financing, they were dissuaded by the increased regulatory scrutiny - potentially involving 10s of millions of euros in extra audits and processes - such a move would bring.

Now, though, with the worsening of the euro zone crisis and some investors' faith shaken in once-solid seeming banks, the idea is again on the table, even though Ring himself was long seen as an opponent of the plan.

Sources said Ring would have been unlikely to publicly announce his apparent change of heart without consulting with his successor Harald Wilhelm. Wilhelm was not available for comment and EADS declined further comment beyond Ring's recent interview with Germany daily Financial Times Deutschland.

German regulator Bafin, which is the body to award banking licenses, said it never comments about whether companies have applied for them. The Banque de France, which would approve any license request in France, had no immediate comment.

"With the crisis, everyone is thinking about scenarios," a source familiar with the matter said. "It is back on the radar screen but I wouldn't say it is close to decision."

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