♠ Posted by Emmanuel in Credit Crisis,Europe
at 9/13/2011 11:16:00 AM
I don't want to start any blasphemous rumours...but damned if it isn't another Murdoch media controversy on hand. Hot on the heels of the UK phone hacking scandal by the News of the World, we now move to a purportedly more respectable publication in the News Corporation stable, the Wall Street Journal. To wit, Nicolas Lecaussin of France's Institute for Economic and Fiscal Research today penned an op-ed in the WSJ concerning the trouble with French banks. Simply put, they have lent too much to troubled Southern European economies including Greece. (France is said to be the largest lender to Greece followed closely by Germany.) More disturbingly, Lecaussin singles out BNP Paribas as having trouble obtaining dollars--the world's vehicle currency--at the very top of his now-infamous scribblings:'We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore," a bank executive for BNP Paribas, who declines to be named, told me last week. "Since we don't have access to dollars anymore, we're creating a market in euros. This is a first. . . . We hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore."This (so far unsupported) assertion helped accelerate a two-day slide in French bank stocks--especially for the aforementioned BNP Paribas (proud sponsors of the French Open as sports fans know):
BNP Paribas SA plunged as much as 12 percent in Paris trading amid concern U.S. money market funds may be shutting off funding to French banks because of their European sovereign debt holdings. “French banks have been strongly hit by funding concerns, sovereign exposure and nationalization fears,” said Herve Samour-Cachian, senior equity fund manager at Natixis (KN) Asset Management in Paris.Hammered by massive equity losses for two consecutive days, BNP Paribas is coming out fighting in denying this rumour:
BNP Paribas, France’s largest bank, fell as low as 23.05 euros, the lowest since March 9, 2009. The stock was down 1.77 euros, or 6.8 percent, to 24.35 euros by 11:57 a.m. Societe Generale SA fell 2.5 percent to 15.19 euros, while Credit Agricole SA slid 0.5 percent to 4.80 euros.
The three banks dropped more than 10 percent yesterday [12 September] on a possible ratings cut by Moody’s Investors Service because of their holdings in Greece. French lenders top the list of Greek [international] creditors with $56.7 billion in overall exposure to private and public debt, according to a June report by the Basel, Switzerland-based Bank for International Settlements.
BNP Paribas SA on Tuesday denied it is facing a dollar-liquidity problem, as reported in an opinion column in The Wall Street Journal. BNP Paribas said it is fully able to obtain U.S. dollar funding in the "normal course of business," either directly or through swaps...While you certainly cannot make a definitive statement on the matter, I am of the belief that Lecaussin was scaremongering, plain and simple. It is a very strong accusation that one of the pillars of French finance can no longer obtain dollars. Although folks are usually entitled to write what they want in op-ed pieces, I do think the WSJ should have looked more into the matter before allowing this one to be published--especially if it is blatantly incorrect. French banks may be in no small amount of trouble, but media-manufactured crises are unwelcome.
BNP Paribas said its has abundant euro short-term funding and has a net dollar short-term funding with maturity shorter than a year worth €60 billion. The bank has €135 billion in "unencumbered assets after haircuts" that are eligible to central banks. The bank also said it is using foreign-exchange swaps to more than offset the recent reduction and "shortening" of funding from U.S. money market funds.
Murdoch(s), you may now have landed yourself in trouble on both sides of the Atlantic.
UPDATE: The timely appearance of BNP Paribas CEO Frederic Oudea on Bloomberg appears to have allayed fears about it being unable to find dollar funding via foreign exchange swaps. Scaremongering aside, why would any major international bank be unable to avail of dollars with interest rates so low and the US government not exactly hoarding the stuff? Its stock is now actually up today having been down more than ten percent earlier:
BNP Paribas, which plunged as much as 12 percent, was 1.8 percent higher by 3:26 p.m. Societe Generale, which slid as much 8.1 percent, jumped after Chief Executive Officer Frederic Oudea said in an interview with Bloomberg Television in New York that the bank’s exposure to European sovereign debt was “manageable” and that it could do without access to U.S. money-market funds.
“For our bank, the exposure to sovereign debt is low, absolutely manageable,” Oudea said. “We have plenty of buffers of liquidity and we are adjusting to the reduction in the money- market fund exposure.”
