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BNP Paribas boss: No ‘peril’ in French banking system

Baudouin Prot dismisses talk that the eurozone’s largest bank needs to raise fresh capital, as BNP and SocGen shares drop again

The boss of BNP Paribas tried to restore calm in the French banking system on Thursday, insisting there was no “peril” in the sector despite the continued fall in the share prices of the country’s major banks.

Baudouin Prot dismissed speculation that BNP Paribas – the eurozone’s largest bank – was trying to raise fresh funds from Middle East investors, and the suggestion that the French government might step in to prop up its banks.

Shares in French banks – which have lost 50% of their value in three months – fell sharply again, amid a global share selloff. SocGen was off 9% and BNP down 5% in markets that were already depressed by anxiety about the pace of growth in the world’s major economies and warnings by the IMF about the health of eurozone banks.

Prot took to the French airwaves to formally deny any suggestion that the bank was talking to Middle Eastern investors about a capital injection. “I formally deny this. We have no particular contact because we don’t need a capital increase,” he said.

BNP also stressed that it could maintain a core tier one ratio – a measure of financial strength – of 9% by January 2013 even if it sustained losses through the eurozone crisis, a full six years before the deadline imposed by banking regulators in Basel, Switzerland.

While both SocGen and BNP Paribas insist they can withstand any worsening of the Greek debt crisis, speculation continues to swirl that they need to raise fresh capital.

“There has been some talk of injecting extra capital into the French banks (and others), whether a European TARP, a repeat of the 2008 French (preference share) injections, or some new form of convertible preference shares triggerable on 2014 core tier on ratios (of less than) 9%,” analysts at Barclays Capital said.

A spokeswoman for BNP had said earlier, before Prot spoke, that: “BNP Paribas is naturally holding roadshows as it does every year to present the company and promote its business to investors across the world”. Prot insisted any contact was a “routine visit, nothing more”.

Greek losses ‘could be managed’

Both BNP and SocGen have taken steps to reduce their reliance on funding in US dollars and to bolster their balance sheets by reducing their exposure to risky assets.

Earlier this month Prot told a banking conference in New York that its exposures to Greece were “manageable”, and that the bank could add one percentage point to its core tier one capital ratio – currently at 9.6% – through the downsizing.

He said that the bank had €4bn (£3.5bn) exposure to Greece and that if took a 55% “haircut” on the exposure, that would cause €1.7bn of losses – the equivalent to just 0.15 percentage points off its capital.

Frédéric Oudéa, his counterpart at SocGen, stressed the banks’s exposure to Greek sovereign debt was €1.7bn, 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.

Analysis by Barclays Capital shows that SocGen might need €30bn and BNP €20bn through debt instruments – not necessarily straight forward equity – if they are to match the capital requirements set out for UK banks by the Independent Commission on Banking (ICB). The ICB suggested banks needed 10% core tier one capital – usually shares – and then loss-absorbing debt such as bail-in bonds or so-called contingent capital – and it is the latter that the BarCap analysts reckon the French banks might eventually need to raise.

The IMF has expressed concern about the eurozone banking sector. Publishing its half-yearly global financial stability report on Wednesday, the IMF sought to quantify the financial strain put on Europe’s banks by the sovereign debt crisis since 2010, which has focused the market on the strength of the European banking sector.

“During this period, banks have had to withstand an increase in credit risk coming from high-spread euro area sovereigns that we estimate amounts to about €200bn. If we include exposures to other banks in high-spread euro area countries, the total estimated spillover increases to €300bn,” José Viñals, the IMF’s financial counsellor, said. © 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