BNP Paribas SA and Societe Generale SA, France’s two largest banks, are trimming about 300 billion euros ($405 billion) off their balance sheets as Europe’s deepening debt crisis threatens to make them too big to save. At the end of March, French financial firms had $672 billion in public and private debt in Greece, Portugal, Ireland, Italy and Spain, according to Basel, Switzerland-based Bank for International Settlements. That’s the biggest exposure to the euro-area’s troubled countries and almost a third more than German lenders. The four largest French banks have 5.9 trillion euros in total assets, including loans and bond holdings, or about three times France’s gross domestic product. “The banks are entering a slimming cure, which is forced by the sovereign crisis,” said Jerome Forneris, who helps manage $10 billion, including the two French lenders, at Banque Martin Maurel in Marseille, France. Rather than tap the market for capital, BNP Paribas and Societe Generale are seeking to free up a combined 10 billion euros through asset cuts and disposals. Paris-based BNP Paribas plans to cut $82 billion of corporate- and investment-banking assets, while Societe Generale may exit businesses such as aircraft and real-estate finance in the U.S.
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BNP Paribas SA and Societe Generale SA, France’s two largest banks, are trimming about 300 billion euros ($405 billion) off their balance sheets as Europe’s deepening debt crisis threatens to make them too big to save. At the end of March, French financial firms had $672 billion in public and private debt in Greece, Portugal, Ireland, Italy and Spain, according to Basel, Switzerland-based Bank for International Settlements. That’s the biggest exposure to the euro-area’s troubled countries and almost a third more than German lenders. The four largest French banks have 5.9 trillion euros in total assets, including loans and bond holdings, or about three times France’s gross domestic product. “The banks are entering a slimming cure, which is forced by the sovereign crisis,” said Jerome Forneris, who helps manage $10 billion, including the two French lenders, at Banque Martin Maurel in Marseille, France. Rather than tap the market for capital, BNP Paribas and Societe Generale are seeking to free up a combined 10 billion euros through asset cuts and disposals. Paris-based BNP Paribas plans to cut $82 billion of corporate- and investment-banking assets, while Societe Generale may exit businesses such as aircraft and real-estate finance in the U.S.
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Scared Markets
“When the market gets scared, you have this short-dated paper that matures and it is not renewed,” AlphaValue’s Nijdam said. “Because it is in big chunks, the liquidity squeeze can go much faster than, let’s say, a traditional bank run from retail customers.”
French banks say they can cope with the slump in U.S. money-market funding. On Sept. 15, the European Central Bank said it will ensure euro-area lenders access to dollars in coordination with the Federal Reserve.
French banks also have diversified sources of profit, including less cyclical businesses such as insurance, that allowed them to weather the 2008-2009 crisis, said Montsegur’s Chaulet. The lenders’ domestic retail business -- their mainstay -- remains strong, Oudea said this month.
“The banks don’t want to recapitalize and focus on highly profitable businesses or on their domestic retail markets,” said Martin Maurel’s Forneris. “If the sovereign debt crisis is solved, these stocks have a huge potential of rebound over the medium term.”
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For now, the scarcity of short-term U.S dollar funding and sovereign debt crisis that is both deepening and widening is driving banks’ efforts to slim down.
Societe Generale said it plans to free up 4 billion euros in capital through disposals by 2013. Its disposals may come from its Global Investment Management and Services division, Oudea has said, without giving further details. Analysts estimate the bank is shrinking its balance sheet by about 100 billion euros, a number the bank declined to confirm or deny.
BNP plans to cut its total assets by 10 percent, or about 200 billion euros. It’s shrinking its corporate- and-investment banking unit, where there will be “significant” job reductions, Prot said yesterday. On Sept. 19, the bank said it will discontinue its “pure retail” banking activity in Russia, where it operates 26 branches.
BNP Paribas is shrinking its balance sheet after total assets rose 34 percent to 2.24 trillion euros in the three years through June 2010. Total assets were at 1.93 trillion euros in June, about the same size as France’s GDP.
“It’s a step in the right direction, but maybe it won’t be enough,” said AlphaValue’s Nijdam. “To cut the balance sheet, it’s quicker to adjust through the trading books. BNP and SocGen lack the ambition to reduce the size of trading books.”
The banks are also late in taking such steps, said Lutz Roehmeyer, who helps manage about $14 billion at Landesbank Berlin Investment GmbH and holds shares in the two banks.
“They underestimated how big the crisis could get in Europe,” Roehmeyer said. “But this is not a new crisis, it’s just the aftermath of the 2008 banking crisis.”
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Gold crashed more than $100 lower on Friday as a slide turned into a free-fall, with weeks of volatility, renewed strength in the dollar and talk of hedge fund liquidation wrecking its safe-haven status.
Widespread talk of possible selling by big hedge funds covering losses in other markets set off one of the biggest routs on record. Silver futures, which had attracted even more speculative funds over the past year, dived nearly 17 percent, the biggest daily loss since 1987.
Gold slumped by more than 6 percent -- its biggest slide since the financial crisis in 2008 -- to hit its lowest since the start of August as this week's losses accelerated, even as stock and oil markets stabilised after Thursday's rout.
Even after the steep loss, gold remained up 16 percent for the year to date. Spot silver was down almost 1 percent for the year.
Mounting fears this week of a global recession and a deepening Greek debt crisis made investors treat precious metals like any commodity, ignoring the safe-haven appeal that had made them a must-have in times of trouble.
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The FTSE 100 closed up 25.20 to 5,066.81 on Friday, but ended the week down 5.62pc, with £78bn knocked off the value of Britain's blue-chip companies. While the index closed higher, it had fallen as much as 1.6pc earlier in the day, dropping through the pyschologically important 5,000 mark.
The falls came as traders were left underwhelmed by a communique rushed out in the early hours of Friday morning by G20 finance ministers at the IMF meeting in Washington. In the wake of Thursday's global stock market rout, the G20 committed "to take all necessary actions to preserve the stability of banking systems and financial markets" but was criticised for failing to introduce concrete measures.
Speaking at the IMF meeting on Friday, UK Chancellor George Osborne ratcheted up the pressure on European leaders to solve the crisis by calling on them to bolster the European bail-out fund and declaring they have just six weeks to find solutions.
"Patience is running out in the international community... More needs to be done to avoid a disorderly outcome," he said, before referring to the next G20 meeting in Cannes on November 3 and 4. "The eurozone has six weeks to resolve its political crisis."
The comments came amid speculation that eurozone policymakers were considering boosting the size of the region's bail-out fund, the European Financial Stability Facility (EFSF), and rumours that France could step into help its banking system. The G20 communique had earlier called on the eurozone to "increase the flexibility of the EFSF, to maximise its impact".
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