Geral
By NICOLAS LECAUSSIN, WSJ
'We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore," a bank executive for BNP Paribas, who declines to be named, told me last week. "Since we don't have access to dollars anymore, we're creating a market 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. France's three biggest banks have been the subject of whisper campaigns about their solvency since the beginning of the summer, and Société Générale has lost 22.5% of its value.
BNP, Société Générale and Crédit Agricole together hold nearly $57 billion in Greek sovereign and private debt, versus $34 billion held by the largest German banks and $14 billion at British banks. French banks also held more than €140 billion in total Spanish debt and almost €400 billion in Italian debt as of December, according to the latest figures from the Bank for International Settlements. If either of these latter two governments were to default, their banking systems could collapse and take the French system with them.
BNP, Société Générale and Credit Agricole all say that their finances 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, or 250% of French GDP."
Analysts are suggesting that the government is set to start nationalizing France's banks. The banks have remained silent on the matter, and the government denies this talk. But the last time the French state intervened in the banking system in a big way, the results were disastrous. As recently as the 1980s, most French banks were owned by the state, and by the 1990s the sector was bordering on bankruptcy. The French banking sector shrank by nearly 50% during the decade, while the those in other countries such as Britain and the U.S. grew by 39% and 50%, respectively.
The most famous case of that time was Crédit Lyonnais, which was plagued by mismanagement throughout the 1980s and 1990s until it shifted its debts and liabilities into a new state-owned company, the Consortium de Réalisation. In 2003 Crédit Lyonnais was taken over by Crédit Agricole, but in July 2008 its bills came due anyway.
An arbitration court ordered the Consortium de Réalisation to pay €240 million to the liquidators of the Bernard Tapie group, along with €105 million in interest and €45 million in moral damages—a total of €395 million for one erstwhile borrower. Meanwhile, the SdBO (Western Bank Corporation), a subsidiary of Crédit Lyonnais, lent sums to the Tapie family that added up to more than two-and-a-half times the bank's total capital. French taxpayers paid out more than €15 billion for the mismanagement of Crédit Lyonnais over the years.
The taxpayer-backed losses of mortgage lender Crédit Foncier came to €2 billion. And the Hervet bank (now part of the HSBC group) announced the first losses in its history after its 1982 nationalization.
These and other disasters were brought on by the bank nationalizations of the early 1980s. But despite the subsequent privatizations, French bank boards are still dominated by the alumni of France's famous ENA, the Ecole Nationale d'Administration, and by officials who have worked at the Ministry of Finance. A study by the Management Institute at the Université de La Rochelle finds that between 1995 and 2004 banks administered by government-linked technocrats were in greater total debt than those that were not.
Whether the market's worst fears are realized or not, French banks certainly maintain an all-too-close relationship to the state. This opaque system doesn't offer outsiders much visibility, save for the knowledge that indebted banks and an indebted French state intend to continue to cover each other, no matter the cost and on taxpayers' backs if they must. If U.S. money-market managers no longer trust the French system, this is a glaring reason why. The fastest way to regain their trust would be to end this system.
Mr. Lecaussin is director of development at France's Institute for Economic and Fiscal Research.
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Geral
The Trouble With French Banks
By NICOLAS LECAUSSIN, WSJ
'We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore," a bank executive for BNP Paribas, who declines to be named, told me last week. "Since we don't have access to dollars anymore, we're creating a market 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. France's three biggest banks have been the subject of whisper campaigns about their solvency since the beginning of the summer, and Société Générale has lost 22.5% of its value.
BNP, Société Générale and Crédit Agricole together hold nearly $57 billion in Greek sovereign and private debt, versus $34 billion held by the largest German banks and $14 billion at British banks. French banks also held more than €140 billion in total Spanish debt and almost €400 billion in Italian debt as of December, according to the latest figures from the Bank for International Settlements. If either of these latter two governments were to default, their banking systems could collapse and take the French system with them.
BNP, Société Générale and Credit Agricole all say that their finances 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, or 250% of French GDP."
Analysts are suggesting that the government is set to start nationalizing France's banks. The banks have remained silent on the matter, and the government denies this talk. But the last time the French state intervened in the banking system in a big way, the results were disastrous. As recently as the 1980s, most French banks were owned by the state, and by the 1990s the sector was bordering on bankruptcy. The French banking sector shrank by nearly 50% during the decade, while the those in other countries such as Britain and the U.S. grew by 39% and 50%, respectively.
The most famous case of that time was Crédit Lyonnais, which was plagued by mismanagement throughout the 1980s and 1990s until it shifted its debts and liabilities into a new state-owned company, the Consortium de Réalisation. In 2003 Crédit Lyonnais was taken over by Crédit Agricole, but in July 2008 its bills came due anyway.
An arbitration court ordered the Consortium de Réalisation to pay €240 million to the liquidators of the Bernard Tapie group, along with €105 million in interest and €45 million in moral damages—a total of €395 million for one erstwhile borrower. Meanwhile, the SdBO (Western Bank Corporation), a subsidiary of Crédit Lyonnais, lent sums to the Tapie family that added up to more than two-and-a-half times the bank's total capital. French taxpayers paid out more than €15 billion for the mismanagement of Crédit Lyonnais over the years.
The taxpayer-backed losses of mortgage lender Crédit Foncier came to €2 billion. And the Hervet bank (now part of the HSBC group) announced the first losses in its history after its 1982 nationalization.
These and other disasters were brought on by the bank nationalizations of the early 1980s. But despite the subsequent privatizations, French bank boards are still dominated by the alumni of France's famous ENA, the Ecole Nationale d'Administration, and by officials who have worked at the Ministry of Finance. A study by the Management Institute at the Université de La Rochelle finds that between 1995 and 2004 banks administered by government-linked technocrats were in greater total debt than those that were not.
Whether the market's worst fears are realized or not, French banks certainly maintain an all-too-close relationship to the state. This opaque system doesn't offer outsiders much visibility, save for the knowledge that indebted banks and an indebted French state intend to continue to cover each other, no matter the cost and on taxpayers' backs if they must. If U.S. money-market managers no longer trust the French system, this is a glaring reason why. The fastest way to regain their trust would be to end this system.
Mr. Lecaussin is director of development at France's Institute for Economic and Fiscal Research.
- How The Euro Will End
By GERALD P. O'DRISCOLL JR, WSJ The euro is the world's first currency invented out of whole cloth. It is a currency without a country. The European Union is not a federal state, like the United States, but an agglomeration of sovereign states....
- Half Measures And Wishful Thinking Do Not A Solution Make
Wolfgang Münchau, Financial Times The day may yet come when the eurozone finally agrees a comprehensive package to end the crisis, but this was not the day. What policymakers agreed at 4am Brussels time on Thursday came close to what they set out to...
- Why Europe Dithers
By HOLMAN W. JENKINS, JR., WSJ German voters don't want to bail out French banks and the French government can't afford to. 'All political lives, unless they are cut off in midstream at a happy juncture, end in failure." That morbid thought,...
- Last Chance To Save The Euro
By JOHN H. COCHRANE, WSJ The European debt discussions always paint the alternatives as either bail out countries (really, bail out their bondholders) or break up the euro. In fact, the euro and the European economic union would be stronger if countries...
- The Greek Example
Editorial do WSJ Seventeen-point-seven per cent. That was yesterday's yield on 10-year Greek bonds, up from 9.3% a year ago. Two-year bonds are closing in on the 30% mark, and the cost of insuring sovereign Greek debt stands at a stunning 18.2%. Prime...