SocGen Joins Agricole to Boost Profit as Hollande Prods on LoansFabio Benedetti-Valentini
BNP Paribas SA, Societe Generale SA and Credit Agricole SA, poised this week to report their highest combined profit since the Greek debt swap, are facing pressure to do more to grease the wheels of the French economy.
Second-quarter net income at France’s three biggest banks may be about 2.8 billion euros ($3.7 billion), according to average analyst estimates. That compares with 2.34 billion euros in the year-earlier period, marking what would be the highest quarterly level since Greece’s sovereign-debt restructuring in early 2012.
President Francois Hollande’s government is prodding banks to lend more to help France claw out of a recession, while cutting them some slack on other fronts. The most exposed to Europe’s troubled economies, French banks were spared a split of lucrative investment-banking activities as lawmakers passed a bill this month to segregate proprietary trading, the first such move in Europe. Also, new French regulations may give the lenders a liquidity boost of as much as 50 billion euros.
“Their results are stable again,” said Jacques-Pascal Porta, who helps manage 600 million euros at Ofi Gestion Privee in Paris, including shares of the three banks. “Even if their financing situation remains somewhat fragile, it’s sufficient enough to feed the economic system with loans and financings.”
Hollande, who called finance his “biggest adversary” during his election campaign in 2012, is turning to banks to help revive an economy that has stagnated for the past two years, leaving the country with record joblessness.
French corporate loans had edged up 0.8 percent from the start to year to about 808.7 billion euros at the end of May, according to Bank of France data. Lending to small- and medium-sized companies in the first five months, however, fell 0.3 percent to 356.6 billion euros.
“The economic situation remains worrisome,” Credit Agricole Chief Executive Officer Jean-Paul Chifflet, who’s also the head of the French Banking Federation, said in an interview in Les Echos this week.
Hollande has promised to transfer to banks up to 50 billion euros in so-called Livret A accounts -- on which depositors don’t pay taxes -- from the state-owned lender Caisse des Depots to help finance the economy, he said.
“This is key to our country’s recovery,” Chifflet said.
At France’s four largest banks, including Groupe BPCE, loans exceeded deposits by 367 billion euros at the end of 2012, Moody’s Investors Service said in a May 21 “credit focus.”
While the deposits funding gap has shrunk from 513 billion euros a year earlier, France’s four largest banks had loan-to-deposit ratios “in the upper range” relative to their international peers and a “substantial” aggregate funding exposure of about 1.2 trillion euros, Moody’s said.
The government-designed liquidity boost, which will be effective tomorrow, will help French banks “to lend more,” with financings “mostly in favor of small and medium-sized companies,” the finance ministry said July 19.
The use of the funds will be reviewed in the Fall, the ministry said, without providing details on the transfer of the tax-free deposits from Caisse des Depots.
The additional liquidity comes after France’s three largest banks shrank risk-weighted assets by 128 billion euros and cut thousands of investment-banking jobs in the wake of the European debt crisis.
“They’ve taken their share of pain,” said Julian Chillingworth, who helps manage 20 billion pounds ($30.7 billion) at Rathbone Brothers Plc in London, whose holdings include BNP Paribas and Societe Generale shares.
BNP Paribas, Societe Generale, Credit Agricole and BPCE, like their international counterparts, face stricter Basel-III liquidity rules and reduced short-term funding by a combined 14 percent between mid-2011 and the end of 2012, Moody’s said.
Large French banks “rely more than international peers on short-term wholesale funding, the most volatile and confidence-sensitive,” Moody’s said.
Government plans for tax-free deposits should help them, Credit Suisse Group AG analyst Maxence Le Gouvello estimated in a July 19 note. Rates on tax-free deposits will fall by 50 basis points to 1.25 percent next month, the finance ministry announced July 18. The rate cut should “bring relief” to French consumer-banking revenues, the analyst wrote.
The new-found stability in the bank earnings has helped their shares. BNP Paribas has risen more than 13 percent this year, while Societe Generale and Credit Agricole have gained 7.8 percent and 18 percent respectively. That compares with a 9 percent increase in the French benchmark CAC 40 Index.
BNP Paribas reports second-quarter earnings tomorrow, and Societe Generale will publish its quarterly results Aug. 1. Credit Agricole, France’s third-largest bank by market value, will publish earnings on Aug. 6.
For the quarter ended June 30, BNP Paribas, the biggest bank by market value in the 17 nations sharing the euro, will probably report net income of 1.5 billion euros compared with 1.85 billion euros a year earlier, according to the average estimate of five analysts surveyed by Bloomberg.
“For BNP, more than 60 percent of the revenues come from Europe, and there is little or no economic growth,” said Alex Koagne, an analyst at Natixis Securities in Paris. “To preserve profitability, French banks need to keep under control expenses and doubtful loans.”
BNP’s earnings in the second quarter last year benefited from a 286 million-euro own-debt revaluation and from 75 million euros of gains from selling corporate loans. Banks book accounting charges or gains tied to the theoretical cost of buying back their own debt as market prices fluctuate.
Societe Generale, France’s second-largest bank, is likely to post a 716 million-euro quarterly profit compared with 433 million euros a year earlier, according to the average estimate of five analysts surveyed by Bloomberg. Societe Generale’s results in the year-earlier period, while having own-debt revaluation gains, also included writedowns on its business in Russia and on a U.S. asset management unit.
Credit Agricole, coming out of two consecutive annual losses as it sold an unprofitable Greek unit early this year, will probably report a 593 million-euro first-quarter profit, compared with a restated 56 million euros a year earlier, the average estimate of four analysts surveyed by Bloomberg shows.
While the banks may have put the worst behind them, they may not be completely out of the woods yet, said Natixis’ Koagne.
“Overall the results shouldn’t be polluted by exceptional items, but the economic crisis keeps having an impact,” he said. “The adjustment isn’t over and revenues will keep being under pressure.”