Bloomberg News

French Banks Tumble on Debt, Election Concern: Paris Mover

April 16, 2012

French bank stocks fell, with the country’s three biggest lenders tumbling at least 3 percent on concern that the election of the next president won’t lead to a reduction in the country’s debt.

BNP Paribas SA (BNP), France’s biggest bank, dropped as much as 5.7 percent and traded 3.1 percent lower at 29.46 euros as of 1:31 p.m. in Paris. Societe Generale SA (GLE) lost as much as 4.9 percent and was down 2.9 percent at 17.29 euros, while Credit Agricole SA (ACA) slipped as much as 4.7 percent, trading 3.0 percent lower at 3.79 euros. The three banks were the biggest decliners on the benchmark CAC 40 index. (CAC)

Socialist candidate Francois Hollande, who’s leading in the polls, signaled last week that he may raise the minimum wage; he has pledged to pull back the retirement age to 60 from 62 for some people and also wants to add 60,000 teachers at public schools. With President Nicolas Sarkozy trailing in the polls, investors are concerned Hollande will increase borrowings.

“Many say that the scale is tipping in favor of Hollande,” said Yves Maillot, the head of investments at Robeco Gestions SA in Paris, who helps oversee $6.8 billion. “In this case, there is an argument for the market to question the subject of debt a bit more. But it’s a concern no matter who wins the election.”

Sarkozy and Hollande are neck and neck in the polls for the first round of the election on April 22. Hollande has been ahead by 6 to 14 percentage points in second-round polls. Both candidates say they’ll balance the budget, by 2016 for Sarkozy and a year later for Hollande.

European Risks

The drop in the stocks of French lenders was mirrored in other parts of the region. European bank stocks slid 1.1 percent for the biggest drop among the 19 industry groups in the Stoxx Europe 600 (SXXP) today. Italy’s Banca Popolare di Milano Scarl retreated as much as 5 percent, while Banca Monte dei Paschi di Siena SpA lost 3.4 percent.

“If there is one thing that we have learned from the past couple of years of European debt, it is that these problems tend not to be resolved quickly and painlessly - and it does set the stage for potentially more volatility in the weeks ahead,” Rupert Osborne, futures dealer at IG Index in London, wrote in a note.

Although the premium France pays over Germany on 10-year debt has slid to 125 basis points from 133 at the start of the year, the spread has still widened from a low of 95 points on March 19.

‘Greatest Adversary’

The spread expansion has come amid concern a change in government may slow economic reforms and as the cost of insuring against a Spanish default jumped to a record on April 13 as Prime Minister Mariano Rajoy struggles to prevent the nation from becoming the fourth euro-region country to need a bailout.

“We are seeing a new increase in risk, with tensions on Spanish and Italian debt and to a lesser degree French debt,” Robeco’s Maillot said. Concerns about the reduction of the deficit “have a direct impact on French banks,” he said.

Regardless of who wins, French banks can expect to face transaction taxes -- even on their high-frequency trades -- greater controls on stock options and manager compensation and caps on dividends.

Hollande, who has called finance his “greatest adversary,” has said if elected he would force banks to split retail and “speculative” investment operations, impose a 15 percent increase in levies on profits and ban stock options for executives.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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