BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s biggest banks, face higher taxes and may have to split off some of their riskiest operations after Francois Hollande was elected president.
Hollande, who called finance his “greatest adversary” during the campaign, had pledged he would force banks to split retail and speculative operations, impose a tax on all transactions and increase the levy on bank profit by 15 percent.
“I fear the bank bashing will rise again with Hollande,” said Peter Braendle, who helps manage about $60 billion, including BNP Paribas and Societe Generale shares, at Zurich-based Swisscanto Asset Management.
Hollande’s measures would come as Europe’s debt crisis rears its head again after elections in France and Greece showed a preference for anti-austerity candidates. Hollande, the first Socialist in 17 years to run Europe’s second-largest economy, promised to push for less austerity and more growth, while the new Greek parliament will have three anti-bailout parties represented.
Credit Agricole, which owns unprofitable Athens-based consumer-banking network Emporiki Bank of Greece SA, tumbled as much as 6.7 percent and was 3.3 percent lower to 3.53 euros as of 4:55 p.m. in Paris. Societe Generale, which fell as much as 4.5 percent, was 3.8 percent higher at 17.95 euros and BNP Paribas, which slid as much as 4.1 percent, was up 3.7 percent to 30.05 euros.
Hollande yesterday defeated President Nicolas Sarkozy with about 51.6 percent of the vote. He will have to come to grips with resurfacing worries over Europe’s three-year-old debt crisis after Spanish unemployment hit a record and as Greek political leaders struggle to form a government.
French banks held $620 billion in private and public debt in Greece, Portugal, Ireland, Italy and Spain at the end of December, the world’s highest such holdings by foreign lenders, according to the Bank for International Settlements. France’s largest lenders are reducing their balance sheets by at least 300 billion euros ($391 billion) after booking writedowns on Greek sovereign debt and enduring a liquidity crunch last year.
“The black spot is Greece; Hollande’s win was already discounted,” said Gregory Moore, who helps manage 200 million euros at Montsegur Finance in Paris and owns shares in BNP and Societe Generale. “Hollande’s wiggle room will be limited. He can’t afford having the financial system up in arms against him because he needs it to buy French sovereign debt.”
Hollande promised to reform France’s banking industry, built around the so-called “universal” model with operations stretching from consumer banking to capital markets. The effort may cut earnings of BNP Paribas, Societe Generale, Credit Agricole and Natixis SA.
The four banks may see their 2013 profit dented by 10 percent under Hollande’s plan, according to Jean-Pierre Lambert, a London-based analyst at Keefe, Bruyette & Woods Ltd.
Speaking before the runoff between Hollande and Sarkozy, Societe Generale Chief Executive Officer Frederic Oudea said he was “confident to convince any government” that the French universal banking model is “the best” for economic growth.
“I haven’t heard any idea of spinoff,” Oudea, who is also the head of the French Banking Federation, said in a May 3 interview with Bloomberg Television. “The idea is to ensure that the taxpayer is not exposed to any speculative activity. That’s the case in France. There’s not a single euro of deposit which is financing any speculative activity.”
Societe Generale spokeswoman Nathalie Boschat declined to comment as did BNP Paribas’s spokeswoman Carine Lauru and Credit Agricole’s Anne-Sophie Gentil.
The state may collect about 800 million euros from higher taxes on banks’ profits, Jerome Cahuzac, the head of the French national assembly’s finance committee and the Hollande campaign’s main budget adviser, estimated in an April 18 interview with La Tribune.
“European banks are already strangled by tougher capital requirements, their profitability can’t bear any additional charges,” said Thomas Rocafull, financial-services director at Paris-based advisory firm Sia Conseil. “As adding barriers increases refinancing conditions, the cost of a split measure is going to be paid by clients.”
The splitting off of “speculative” banking activities may not lead to a separation of all capital-markets activities, meaning the French measures may not go as far as in the U.K. John Vickers of the U.K.’s Independent Commission on Banking proposed erecting firebreaks between their consumer banking and investment operations.
In the U.S., a rule named for ex-Federal Reserve Chairman Paul Volcker seeks to prevent deposits-taking companies from making bets with their own capital and limits their investment in hedge funds.
Although Hollande hasn’t spelled out his measures, Cahuzac said last month that “extremely constructive” talks about the split proposal are under way with financial firms.
“It will be difficult perhaps to draw a precise line” between consumer-banking and “speculative” activities, Cahuzac said. “But you can see what’s on one side and what’s on the other side,” he said.