French banks bear brunt of market jitters

Shares in Societe Generale, BNP Paribas and Credit Agricole slumped by more than 10 per cent today amid expectations of an imminent downgrade by credit ratings agency Moody's, due largely to their exposure to Greek bonds.

Financial stocks were one of the steepest fallers today as the market digested news of the shock resignation of European Central Bank chief economist Jürgen Stark last Friday, and weekend comments by German politicians suggesting Athens may have to default and be "suspended" from the euro zone.

Meanwhile, Bloomberg has reported that Societe Generale, BNP Paribas and Credit Agricole are being quoted higher rates than their competitors in the commercial paper market.

Investors charged the French companies an average 6.7 basis points more to borrow three-month commercial paper on September 8th than the rate the lenders said they could pay in the London interbank offered rate market, according to buyers in the market, the newswire said. As recently as July, the banks received CP rates that were lower than Libor.

Premiums on short-term loans are rising as odds of a default by Greece grows, with German Chancellor Angela Merkel preparing plans to aid her nation's financial companies.

The dramatic falls in the shareprice forced SocGen, the hardest hit French lender in recent weeks, to announce further drastic measures it denied only last week were under consideration, speeding up asset disposals and deepening cost cuts.

SocGen shares are now trading at a historic low of €15.55, after losing more than two-thirds in seven months.
Since mid-2007 the bank has seen €52 billion wiped off its market value, which today stands at €13.5
billion - smaller than spirits group Pernod Ricard or fashion house Christian Dior.

The bank's chief executive, Frederic Oudea, said there were no discussions under way regarding possible state
intervention in French banks, and Bank of France governor Christian Noyer rushed out a statement saying French banks were not at risk.

"No matter what the Greek scenario, and whatever measures must be passed, French banks have the means to face up to it," Mr Noyer said.

French banks and insurers are not only the biggest foreign holders of Greek government bonds, both directly and through Greek subsidiaries, but also major creditors of Italy, which is increasingly in the market's firing line.

Bloomberg