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9th September 2011

French banks and commercial wholesale funding
Opinion

Société Générale and BNP Paribas have both been forced into making special presentations detailing a lot of the information missing from their half year reports in terms of total European sovereign debt holding. The move follows difficulties that some banks have had in raising funds on the wholesale markets, and an attempt to prevent this happening in the future.


The general interpretation of the additional disclosures was perhaps more good than bad for the short term at least. Société Générale has seen a fall of over a quarter in dollar funding over July And August, from $72bn at end of June to $53bn at end of August. In itself this is not a critical factor. Analysts say that SocGen can ease back on certain US activities and convert Euro funding to dollars.


BNP Paribas has €75bn (£66bn $105bn ¥8.1tr Y673bn) of Eurozone sovereign debt of which €21bn (28%) is Italian. This is explained by the acquisition of BNL five years ago. Given the overall size and strength of BNP Paribas a significant haircut of Italian bonds would be painful but not a knockout blow for the bank. The bank also insisted in its presentation that it had no current liquidity problem.


This leads on to two related points. There was comment from some sources, including Barclays, that the presentations emphasised that French banks funding was heavy on the short term debt and light on the long term. It would seem surprising that the French authorities have not insisted on a change to this before now. Second that banks with surplus Euros have been keen to place this with the European Central Bank rather than lend on the wholesale market. Although the funds can be used by the central bank to provide emergency liquidity all need to be beware of unintended consequences. The ECB could be in danger of seeing its role and importantly the risk that it takes on start to change significantly.

The BNP document can be read at:
http://compresse.bnpparibas.com/applis/wCorporate/wCorporate.nsf/docsByCode/LPOS-8LGBW2/$FILE/Euro_Liquidity_Sovereign_debt.pdf