OID: You mentioned earlier that Paribas' stock price had declined by half or more from its highs.
   Cundill: That's right. In part, that's been because of a severe turndown in the real estate market. What happened in the U.S. in 1990 started happening in 1993 in Europe -- and particularly in France, Belgium and Sweden. Actually, it may have even started in Sweden a little before that -- because their banks had been remarkably aggressive in making loans and buying real estate (in Europe mostly, but in a lot of other places, too).
   So the bad times happened later in Europe than they did in North America. And I'm not even sure if we've seen the beginning of the end or the end of the beginning.

OID: Winston Cundill. It has a nice ring to it.
   Cundill: But Paribas and others have finally taken a whole lot of very hefty provisions. And, in Paribas' case, we think there's not much more provisioning to be done in their loan portfolios -- although there may still be some to be done in the real estate they own for their own account. But I'm not even sure about that.
   Anyway, I think they're pretty close to being adequately or more than adequately provisioned.

   McElvaine: That's what we hear. Of course, you always hold your breath when you say that -- especially in a financial institution.

OID: Any thoughts about where Paribas would be fairly valued?
   Cundill: Their assets are fine. So that will depend on its earnings. We just figure that if they can get their earnings on some kind of progression and begin to look as if they've slimmed down the business and focused it, I wouldn't think that a FF500 share price would be out of order.

   McElvaine: Investment banks' earnings tend to be volatile. And the stock market seems to show constantly that when earnings are volatile in an upward fashion that they're willing to put a nice P/E on those earnings.

OID: In other words, the greater fool theory?
   McElvaine: First, Paribas' NAV is significantly in excess of the market price. Second, its management is refocusing the business and concentrating on increasing its return on equity. And, third, its business can earn a substantial amount of money in the right environment. They're not the largest player in Europe, but they're one of the largest. I just saw something recently that ranked them fifth in the underwriting of debt.
   Also, the control of Paribas rests in the marketplace.

OID: Meaning?
   McElvaine: If people think that Lehman is worth a small premium to book value because it's not controlled and there's, therefore, some takeover speculation, why should Paribas be selling for half of NAV?

OID: Perhaps because of its returns and its domicile?
   McElvaine: For now. I'm not suggesting that they'll be taken over -- just making a passing observation. Although we're certainly not counting on it, there's an outside chance Paribas could find itself the subject of a suitor. But, again, we're getting that for free.
   Therefore, not only are we paying nothing for the investment bank, but we're also paying nothing for the possibility that someone else may actually think it's worth something more than half of book.

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