Some French banks have “enormous exposure” to the Greek debt problems. As a result Credit Agricole and Societe General have been downgraded. BNP Paribas is considering “massive restructuring” to reduce costs.
José Manuel Barroso, the European Commission President, has said that the current Eurozone crisis is a “fight for the future of the Euro itself“.
When I worked in “The City” as a corporate actions clerk (sorry, analyst) I worked for one of the French banks. All throughout the sub-prime disaster that toppled the mighty Lehman Brothers and helped to trigger a collapse of the world economic system my bank consistently said that they were in a strong position and immune to the problems because they had not invested in these debts.
Well, now it turns out that they were just fortunate for a while to have invested in different debts which took a little longer to default.
Soc Gen and BNP Paribas in Asset Sell Plan
BNP today announced plans to sell off EUR70 billion of “risk-weighted assets” . So far BNP is looking safe as it was not downgraded by Moody’s. However, Michael Hewson from CMC Markets thinks that is just a matter of time before BNP Paribas goes the same way as the other French banks.
French Bank Share Price Losses
Losses so far in the last 2 days:
- BNP Paribas 2.9% – get latest prices: www.google.co.uk/finance?q=EPA:BNP
- Credit Agricole 4.5% – get latest prices: www.google.co.uk/finance?q=Credit+Agricole
- SocGen 4.1% – get latest prices: www.google.co.uk/finance?q=EPA:GLE
The fear is that these French banks simply have no means to deal with the sudden and catastrophic Greek debt problem. Like any business that invests heavily in a risky and narrow field, a major economic problem quickly turns into a bigger financial crisis.
These banks may have mostly escaped the American sub-prime crisis of 2008 but they are now suffering from their own problems.
However, BNP Paribas estimates that it will suffer a EUR1.7 billion loss as a result of the Greek problem but as it has made a first half pre-tax profit of EUR7.4 billion it can cope with the losses. So although they are not immune to the global economy crisis they can still weather this storm better than some other banks.
The big question now is, what is next? Where will the next major crisis strike? Or is this marking then end of the global economic problems and the restructuring and reposition of assets across the world banking system is making a more solid and safer platform for future investments?
Quotes in first paragraph from the BBC News economics correspondent – if you know his name let me know!