BNP Paribas has sought to calm investor jitters by taking the unusual step of publishing of a detailed document designed to allay concerns on its funding as France’s banks – and others across the eurozone – come under ever greater pressure over their exposure to the European sovereign debt crisis.
US money market funds have been cutting back sharply on their exposure to French banks in recent weeks, fearful both about exposure to Greece and Italy and about the knock-on impact of French government participation in any expansion of the European financial stability facility bail-out mechanism.
Investors appear to have been further spooked, rather than reassured, by some of the details published by BNP’s domestic rival, Société Générale, in a presentation to debt investors last week. “French bank funding structures appear skewed to short term wholesale, light on longer-term debt, although not off the scale,” was the conclusion of Barclays analysts earlier on Wednesday, as they scaled back their forecasts for French banks.
Earlier this week François Pérol, head of the French banking association, said that while there was no problem with euro funding, the supply of dollar funding to French banks was “tight”.
But BNP insisted it had no problems with short term liquidity, pointing to “an excess of short-term liquidity” in dollars which it had deposited at the US Federal Reserve, and “access to substantial short-term euro funding”.
It admitted, however, that securing dollars from alternative funding sources, such as foreign exchange swaps, “had cost implications,” without giving further details.
Shares in BNP have lost 40 per cent of their value since the start of the year, a drop it said was linked to “unrealistically pessimistic scenarios”. But the stock rose more than 6 per cent to €31.60 on Wednesday.
Shares in peers SocGen and Crédit Agricole have lost more than 50 per cent and 46 per cent of their value respectively.
BNP, which made a €534m provision because of its Greek sovereign debt exposure earlier this year, said it had €75bn of eurozone sovereign debt in its banking book portfolio at the end of June of which €21bn is sovereign bond exposure to Italy. The group acquired Italy’s BNL bank in 2006.
It played down the likelihood of a European ‘Lehman’ scenario, or a crisis in interbank lending. Any fall-off in flows, it argued was related to banks gearing up ahead of future Basel III liquidity regulations rather than the current level of risk.
SocGen’s recent disclosures revealed its dollar funding had fallen sharply – from $72bn at the end of June to $53bn by mid-August. Bankers believe that number will fall further, but stress that, as at BNP, there is substantial flexibility to convert euro funding to dollars, as well as cut back on dollar obligations by trimming US market-making.
Both BNP and SocGen have completed their 2011 long-term debt funding programmes.
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