Cundill: I have a long history with Paribas indirectly -- going all the way back to my early days. It was founded in 1872...

OID: You really do have a long history with it.
   Cundill: Early in my career, I actually worked for a Canadian bank affiliated with it. Paribas was founded as a banque d'affaires -- as a sort of businessman's bank. And they created a lot of companies, invested some of the bank's funds and acted primarily as dealmaker -- in effect, as one of the early investment bankers -- before they developed into a wholesale bank.
   But, in 1981, they were nationalized by the Socialists. Then, they were privatized and relaunched -- if you will -- with a number of strategic shareholders in 1986.
   Today, Paribas basically consists of four parts: First, they have the investment bank -- Paribas. Second, they own 46% of a specialized financial institution bank called the Compagnie Bancaire -- which is also publicly traded. Third, they own 100% of a retail bank -- Credit du Nord -- which isn't terribly profitable. And fourth, they have a portfolio that was worth about $8 billion at year end 1995.

OID: Based on stock market prices at that time.
   Cundill: That's right. And at the end of last year, Paribas took a huge amount of losses. As a result, the bank's estimate of NAV declined all the way from FF493 down to FF438. And its shares got down near FF250 -- from FF520 or so in the prior 12-18 months. So they've really come down.

OID: So far, so good. But what about today?
   Cundill: Since year end, Paribas' shares have worked their way up to about FF300. And, in the interim, I believe they've paid a net dividend of FF14.
   But, meanwhile, they also did a deal with a company called Navigation Mixte -- which they owned 33% of already. They bought the remaining 67% at a price that made me quite delighted to be a Paribas shareholder. But I don't think I'd have been so pleased about it had I been a Navigation Mixte shareholder. But it got done.

   McElvaine: And in typical French fashion -- similar to the Japanese practice of interlocking shareholders --Navigation Mixte was both one of its largest shareholdings and Paribas' largest shareholder. Navigation Mixte's ownership of Paribas shares represented about 12% of Paribas' votes and 8-1/2% of its equity.
   So that transaction represented a large repurchase of their own shares at a price we think was even below the low its stock reached last year -- at least it was when you net out proceeds of other Navigation Mixte assets that they've since sold.
   However, they haven't canceled those shares yet. So for the time being, they're holding it as treasury stock. But we calculate that they effectively repurchased those shares at FF250. So they substantially reduced their capitalization at a significant discount to NAV.

OID: In essence, it was a very positive development and enhanced the value of the remaining shares.
   McElvaine: Exactly. Then, the other major thing that happened in the first half of this year is that they disposed of a number of holdings -- the largest of which was a company called Poliet. They'll receive the proceeds from that sale over several years, although they'll receive most of it in '97-'98. And that sale should generate some FF3 billion. Plus, they also had several other disposals at prices well in excess of their carrying value.
   So I think their restated NAV -- and I say I think because they haven't released their June 30th numbers -- is FF475-500. And we're comfortable with that estimate.

OID: And that's stated book, not the net asset value or adjusted book which you referenced earlier.
   McElvaine: That's right.

OID: And the reason why stated book is lower is that you've written up certain assets to market in your estimate of NAV.
   McElvaine: That's right. But, again, what accounted for the enormous increase in NAV was the combination of the share repurchases and asset sales I mentioned earlier.

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