February 27, 2021

Debt Fears Rattle Big Banks in France

Even as French officials proclaimed that the country’s banks were sound, shares in BNP Paribas and Société Générale, two globally connected French banks considered “too big to fail” by their home government, slid as much as 12 percent. And their cost of short-term borrowing continued to soar, making it more expensive for them to finance day-to-day operations.

The looming question is whether the French government will have to step in to support its banks, much as the American government did during the financial crisis in September 2008. Then, as now, a retreat by nervous investors threatened the banks’ liquidity. Back then the United States responded by guaranteeing various types of loans to the banks to keep the financial system operating.

French officials on Monday took pains to say they stood behind the banks. Seeking to reassure investors, France’s central bank governor, Christian Noyer, said in a statement, “No matter what the Greek scenario, and whatever measures must be passed, French banks have the means to face up to it.”

But behind the scenes, the French government is preparing for all eventualities. If a recapitalization becomes necessary to restore investor confidence in any French bank — even if the banks do not technically require new capital — then the government will be prepared to take such action, said a senior government finance official involved in managing the situation, who was not authorized to speak publicly.

Given the need for France, along with Germany, to play a central role if the European debt crisis is to be resolved, the perceived stability of the biggest French banks is a crucial issue.

And big American banks, which do extensive business with BNP Paribas and Société Générale, want to know their French counterparts are sound. Over the last month, the French banks have found it increasingly expensive to secure short-term loans in dollars for their United States dealings, while their cost of short-term borrowing in general has soared. And the cost of insuring against default of the banks’ own bonds has spiked to record levels in recent weeks.

Efforts to calm investors was to little avail on Monday, as the French market slumped even more deeply than most other European exchanges. United States stock indexes, after being down for most of the trading session on Monday, ended up for the day.

French officials sought to flood the airwaves on Monday with reassuring statements, the second time in a month they came out swinging to combat the perception of problems. Last month, the government also scrambled to show that the nation’s AAA sovereign rating was intact, after the Standard Poor’s downgrade of United States debt caused nervous investors to question France’s standing.

On Monday, the question of whether the French state might need to nationalize its banks in the event of further turmoil was met with an unequivocal “non”— at least for now.

“It is totally premature to discuss” even a partial nationalization of French banks, the French industry minister, Éric Besson, assured the country in an early morning television interview.

Société Générale announced Monday it would raise new cash by selling off assets. Société Générale and BNP Paribas, along with a third bank, Crédit Agricole, are considered integral actors in the French economy. They lend billions of euros to businesses and individuals, and the government has said it will never let any of them fail.

France’s financial watchdogs are monitoring the bank situation closely, officials said, as is President Nicolas Sarkozy, who would be loath to see one of the banks stumble to the point where a merger or takeover might be required before the French presidential election next spring.

Article source: http://feeds.nytimes.com/click.phdo?i=dc0550c59b12e041501dcfceef828ce4

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