* Banks struggle to syndicate asset-based loans
* Investors with the right tools seen lacking
* 'Originate-to-distribute' faces regulatory scepticism
* BNP seen better positioned than SocGen, Credit Agricole
By Christian Plumb
PARIS, April 10 When oil independent Det Norske was looking for a 4.5 billion Norwegian crown ($792 million) credit line in 2010, it turned to French bank BNP Paribas , a long-time top-ranked energy lender, as lead arranger.
But last month when the exploration and production firm looked to borrow $500 million, BNP was nowhere to be found, replaced by Nordic lenders like DNB, Nordea and SEB.
Such deals were fertile ground for banks like BNP until last summer, when once-abundant cheap dollar funding vanished as U.S. investors, spooked by the eurozone crisis, dashed for the exits.
"This shows that things are changing," said Yannick Naud, a portfolio manager at Glendevon King Asset Management in London, referring to the Det Norske loan.
"This type of asset-based financing, it's difficult to gain market share and it takes time to lose it, probably," he said, adding that market share losses were still inevitable over time.
As they scramble to keep their once dominant - and lucrative - position in niche markets like shipping loans and project finance, BNP, Societe Generale and Credit Agricole have trumpeted a new business model under which they will arrange loans but sell the debt to third parties.
The looming Basel III accords mean banks need to find ways to either cut the value of loans on their balance sheets or raise more capital. Since the latter is a step most have ruled out, the idea of simply arranging loans on which other investors take the risk is a tempting one.
Examples include BNP and Societe Generale's roles as bookrunners on a $1.3 billion bond sale in February by Abu Dhabi's Dolphin Energy, majority-owned by state fund Mubadala.
But the obstacles are substantial, from potential internal turf wars to a dearth of willing investors, not forgetting the stigma lingering around securitisations since soured products like collateralised debt obligations helped trigger the global financial crisis.
TOUGH TO SELL
Even bank executives whose jobs depend on a successful transition to the new model like Societe Generale Chief Executive Frederic Oudea acknowledge it won't be easy.
"There is a potential appetite from pension funds, insurers or asset managers for this kind of asset, but there is work to be done to educate, I would say, and engineer these assets in order for them to be able to buy these assets," he said in a recent investor presentation.
Project finance, for example, long a strength of SocGen and domestic rivals, is almost all provided via loans that end up on banks' balance sheets, according to figures provided by the No. 2 French bank as part of its presentation.
Export and infrastructure financing - viewed as relatively esoteric areas without huge volumes - also tend to be tough to sell on to investors, Oudea said, noting that at this point th e bank di stributes only one third of the loans it originates, most of which are in the "vanilla corporate loans" category.
Many investors doubt that SocGen and rival Credit Agricole will be able to move the needle much any time soon.
"BNP has probably has more chance than all the other French banks to do so because they have a strong position in some market segments but it will take a lot of time," Naud said.
Credit Agricole was the world's No. 4 project finance arranger in 2011, with $6.5 billion of loans, after State Bank of India, Mitsubishi UFJ and Sumitomo Mitsui Financial Group, according to Project Finance International, a Thomson Reuters publication. Societe Generale and BNP Paribas were 6th and 7th, respectively, on the list.
"Banks all talk about it but in terms of 'originate-to-distribute' actually working in Europe - we have to see concrete progress," said KBW analyst Jean-Pierre Lambert. "They have to develop and enhance the distribution capacity for non-vanilla lending."
Roland Berger Strategy Consultants has been trying to advise French banks on how to raze the barriers that have traditionally walled off areas like structured finance - only 9 percent of which is re-packaged into bonds as opposed to 64 percent in the U.S. - from investor-facing divisions such as debt capital markets, said Pierre Reboul, a partner at the firm.
"The main obstacles are going to be the fact that these organisations never work together in French banks," he said. "It's not going to happen tomorrow."
Above all, analysts, investors and bankers cited the problem of a lack of buyers for many of the more esoteric kinds of loans, with one senior Paris-based investment banker saying that there might be a government role to structure markets which for now "remain too fragmented."
"Market-making doesn't exist anymore," he said. "The government has many roles, one of them is to make sure markets really work."
Insurers, one of the biggest potential buyers, "don't have the tools in-house" to handle such debt, said another Paris-based banker.
At least part of investors' reticence may be based on the sad fate of investors like Germany's IKB and WestLB which saw billions of euros of investments in residential mortgage-backed securities go sour after the U.S. housing bubble burst.
Regulators - determined to avoid replicating a market in which U.S. banks lent freely to risky borrowers - will likely keep a wary eye on banks seeking to sell their loans.
Securitised debt sold via private placements still has "a negative image among many of our clients," said Sanjay Mistry, director of private debt at Mercer, one of the world's largest pension fund consultants, advising more than 2,700 clients with assets in excess of $3.5 trillion.
"The mistakes of the past have not really been forgotten and that is still a big issue." (Additional reporting By Sinead Cruise and Lionel Laurent; Editing by Helen Massy-Beresford)