France’s top bank BNP Paribas announced a plan to sell €70-billion – or $95.7-billion (U.S.) – of risk-weighted assets to help ease mounting investor fears about French bank leverage and funding as its main rivals were hit by ratings downgrades.
BNP escaped Moody’s Investors Service’s review of French banks without a cut, but the ratings agency said it would extend its review for a possible downgrade of BNP’s long-term debt and deposit ratings.
“Surely it can only be a matter of time before BNP Paribas follows in their wake as the bank announces a restructuring plan to increase capital, probably in order to head off a downgrade at the pass,” said Michael Hewson, market analyst at CMC Markets, referring to the Moody’s downgrades of Société Générale and Crédit Agricole.
BNP shares were down 2.9 per cent in early trading on the Frankfurt exchange, while Crédit Agricole was 4.5 per cent lower and SocGen lost 4.1 per cent.
French banks are fighting to restore confidence after suffering a sharp summertime sell-off on the stock market, driven by concerns they are too dependent on wholesale market funding and ill-equipped to cope with the fallout from a Greek debt default.
BNP announced the move two days after rival Société Générale unveiled a similar plan.
In a presentation posted on BNP’s website on Wednesday, the bank said the asset sales would reduce its balance sheet by around 10 per cent. The bank will also reduce its U.S. dollar funding needs by $60-billion by the end of 2012, it said.
U.S. dollar funding costs have ramped up recently as European banks are forced to diversify their sources following jitters on the U.S. money markets about the euro debt crisis.
U.S. money market funds slashed their holdings of securities issued by French banks on worries over their high exposure to peripheral European debt, J.P. Morgan analysts said on Friday.
By selling assets and freeing up capital, BNP will be in shape to reach a core Tier 1 ratio of 9 per cent on Jan. 1, 2013 under the new Basel III regime of tougher capital requirements, the bank said.
Addressing concerns over its exposure to Greek sovereign debt, which is the highest among France’s banks, BNP said that a hypothetical 55 per cent additional write-down of its portfolio would lead to a “manageable” loss before tax of €1.7-billion.
Its first-half pre-tax profit was €7.4-billion.
The bank said there would be a potential hit in the third quarter from its Greek debt exposure.
BNP chief executive Baudouin Prot, who is due to move up to the chairman role later this year, will present the plan at a Barclays investor conference in New York later on Wednesday. SocGen CEO Frederic Oudea presented his own bank’s plan on Tuesday.
Analysts estimate SocGen will have to sell around €40-billion in risk-weighted assets to meet its own targets.