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What's the Matter With the French Banks?
OPINION EUROPESEPTEMBER 13, 2011
Whether the market's worst fears are realized or not, the financial system maintains too close a relationship to thestate.
"We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore," a bank executive for BNPParibas, who declines to be named, told me last week. "Since we don't have access to dollars anymore, we're creating amarket in euros. This is a first. . . . we hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore."He's not the only one worried. Société Générale has lost 22.5% of its value since the beginning of the summer. In early September, BNP released a statement—in English, which is highly unusual—explaining that it has abundant dollarliquidity and that BNP has nothing to worry about, unlike other banks. France's three biggest banks have been thesubject of whisper campaigns about their solvency throughout the summer.On the surface at least, the concerns are hardly groundless. BNP, Société Générale and Crédit Agricole together holdnearly $57 billion in Greek sovereign and private debt, versus $34 billion held by the largest German banks and $14 billion at British banks. And then there is Spain and Italy. French banks held more than €140 billion in total Spanishdebt and almost €400 billion in Italian debt as of December, according to the latest figures from the Bank forInternational Settlements. If either of these governments were to default on their debts, their banking systems couldcollapse and take the French system along with them. BNP, Société Générale and Credit Agricole all say that theirfinances are in order and the market worries are unfounded.But it's difficult for the BNP executive to hide his concern. "Look at the French banks' debt holdings versus those of U.S. banks," he continues. "The total debt of the three big U.S. banks (Bank of America, JP Morgan and Citigroup) is$5.86 trillion, or 39% of GDP, while the debts of BNP, Crédit Agricole and Société Générale come to €4.7 trillion, or250% of French GDP."Now that the situation is bordering on catastrophe, analysts aresuggesting that the government is set to start nationalizing France's banks. The banks have remained silent on the matter, and thegovernment denies this talk. That's just as well—the last time theFrench state intervened in the banking system in a big way, theresults were disastrous. As recently as the 1980s, most French banks were owned by the state, and by the 1990s the sector was borderingon bankruptcy. The size of the French banking sector shrank by nearly 50% during the decade, while the banking sectors in othercountries such as Britain and the U.S. grew by 39% and 50%,respectively.The most famous case of that time was that of Crédit Lyonnais, which was plagued by mismanagement throughout the 1980s and 1990suntil it shifted its debts and liabilities into a new state-ownedcompany, the Consortium de Réalisation. In 2003 Crédit Lyonnais was taken over by Crédit Agricole, but in July 2008
Page 1of 2Nicolas Lecaussin: What's the Matter With the French Banks? -WSJ.com13/09/2011http://online.wsj.com/article/SB10001424053111904353504576566191261182836.html