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Shades of Lehmans as SocGen boss plays down fears for banks

Another day of wild gyrations for French bank stocks reflects concerns over exposure to Greece and how they raise funds

Frédéric Oudéa, the exasperated chief executive of Société Générale, stood in front of investors in New York on Wednesday for some “straight talk” to counter continued anxiety in the markets about the health of the French bank system.

In rapid-fire delivery, the Frenchman acknowledged the rumours that have swirled around the bank over the past month – as the deepening eurozone crisis has highlighted the exposure of all French banks to the problem countries – and set out to dispel the idea that France’s second biggest bank could be crippled if the crisis worsens.

Spitting out statistics, Oudéa stressed that SocGen’s exposure to Greek sovereign debt was €1.7bn (£1.5bn), down from €2.6bn at the end of last year, plus €3.3bn of other lending through its Greek bank Geniki – barely 1% of the group’s balance sheet. The day after announcing plans to raise €4bn by selling off assets, he stressed the exposures were “manageable”.

Oudéa was speaking after another day of wild gyrations for French bank stocks, which plunged by up to 12% in early trading before racing higher byat the end of the day after the country’s biggest bank, BNP Paribas, denied it was facing funding difficulties for US dollars. Even so there are calls for France to step in and bail out its banks.

Sir Howard Davies, former chairman of the Financial Services Authority and now a professor at the Sciences Po university in Paris, told the BBC’s Today programme: “I believe there is no alternative now in France for the government to put in fresh capital. Within the next two or three days the French government will have to recapitalise their banks.”

Amid rumours that China may invest in Italy to help prop up what is regarded as the last country that can fall before the eurozone breaks up, Louise Cooper, of BGC Partners, said: “How many more days can we see such steep share price falls without some kind of government intervention? It appears that the Chinese government may be buying stakes in Italian companies, but will the French state start buying shares in their banks?”

Christine Lagarde, the new head of the International Monetary Fund and former French finance minister, has also suggested banks in Europe need to raise capital. Asked by an investor about that view, Oudéa said he did not see a problem with capital.

Despite Tuesday’s share prices rises in SocGen, BNP and Crédit Agricole, the atmosphere is tense. An opinion piece in the Wall Street Journal – in which Nicolas Lecaussin, director of development at France’s Institute for Economic and Fiscal Research, said a BNP executive had told him the bank could no longer borrow in dollars – was quickly denied by the French bank. Comment pieces are usually shrugged aside but this time there was no restraint: “BNP Paribas categorically denies the statements.”

The French banks are particularly sensitive to newspaper coverage. SocGen may sue the Mail on Sunday over an article it wrote in August for which it has already published an apology.

Two main issues are affecting sentiment in the French bank sector: their exposure to Greece and how they raise the funds to operate their businesses. There is also a possible downgrade of the French banks by Moody’s ratings agency, which could come in the next few days. It helped fuel Monday’s 10% decline in the sector.

Data from regulators in Basel, Switzerland, shows that French banks have more exposure to Greek creditors – .7bn – than other European banks. Analysts at Barclays Capital, after conducting a comparison with eight non-French banks, concluded: “The French banks in absolute terms have some of the biggest amounts of short-term debt outstanding … their wholesale funding mix is more skewed to the short term.” The BarCap analysts stress, however, that French banks are not on a “dimensionally different scale” to their rivals.

On a week of anniversaries – four years from the start of the run on Northern Rock and three years from the collapse of Lehman Brothers – comparisons are being made with the conditions in 2008 in the days after the Wall Street bank collapsed. Analysts at Nomura reckon the comparison is overdone as banks have pre-empted their liquidity needs, built up dollar deposits and can turn to the European Central Bank in a way they were unable to during the credit crunch.

French bank bosses will no doubt be hoping that the rally can be sustained. And even if the Élyseé does have to step in, the banks will be in familiar territory as many of them were state-controlled until the mid-1980s. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds