French banks sink on downgrade speculation

Eurostoxx 50:1,995.01 (–78.66) Frankfurt DAX:5,072.33 (–117.60) Paris CAC:2,854.81 (–119.78)

FRENCH BANKS fell sharply yesterday, as concerns intensified that the debt crisis in the euro zone was reaching an impasse that would force Greece into a disorderly credit default.

Assurances from Société Générale that its exposure to euro zone debt was manageable were not enough to soothe market nerves as financial stocks across the continent sank on fears of an eventual break up of the euro zone.

“The euro zone crisis has clearly taken a turn for the worst with fears mounting that a Greek debt default could at last be imminent and the credibility of the European Central Bank is also coming under the spotlight,” said Jane Foley at Rabobank.

Some reports circulated that rating agency Moody’s was preparing to downgrade the three biggest French banks because of their exposure to Greek debt.

Shares in BNP Paribas shed 12.4 per cent to €26.12, Crédit Agricole lost 10.6 per cent to €4.83 and Société Générale slid 10.8 per cent to €15.57.

Société Générale said its exposure to euro zone periphery debt was €4.3 billion, a level it described as “declining and manageable”.

“We remain of the opinion that the short-term liquidity profile of the bank is very poor compared to peers and its solvency is relatively weak,” said Espirito Santo investment bank, which retained its “sell” rating on Société Générale and target price of €15.50.

The CAC 40 in Paris was the worst performing of the non-periphery indices.

“Only a ‘shock and awe’ move by the ECB or a similar authority, such as the US Fed or the German or French government can now save markets from an economy shaking crash,” said Clem Chambers, chief executive of ADVFN.

Banks across the region were lower. National Bank of Greece shed 8.3 per cent to €2.87, Italy’s UniCredit lost 10.9 per cent to €0.69, Spain’s BBVA shed 5.3 per cent to €5.14, Germany’s Deutsche Bank fell 7.3 per cent to €21.40 and Brussels-listed Dexia fell 8.1 per cent to €1.31.

Insurers fell, with Germany’s Allianz down 6.5 per cent to €57.47 and France’s Axa shedding 9.7 per cent to €8.48. – (Copyright The Financial Times Limited 2011).