French bailout would dwarf 2009 rescue

FRENCH banks will need a capital injection in the tens of billions, according to analysts.

In several notes yesterday, analysts began to lay out how a new bailout of the country’s lenders could happen, with some suggesting that it is “the best risk-reward medicine”.

Following comments by Banque de France governor Christian Noyer that Europe’s bailout fund could step in the rescue the banks, analysts have said that any capital injection will have to be on a larger scale than the action taken in 2009.

Nomura’s Jon Peace wrote that in a “recessionary” scenario, they could need as much as €60bn (£52bn) to meet capital requirements. That dwarves the €8.5bn they received in the last financial crisis.

JP Morgan’s Kian Abouhossein says that bailing out the banks is a better option than “socialising bank risk” in other ways such as the European Central Bank’s decision to extend access to its liquidity facility or governments underwriting bank debt.

Abouhossein estimates that a €15-€20bn bailout is likely for French banks but that across the region, his top 28 lenders would require €45bn in extra capital. A regional bailout, meanwhile, would cost €150bn, he calculates.

French banks rallied yesterday on the prospect of a bailout being organised by European authorities.

Credit Agricole closed up 3.66 per cent, Société Générale rose 5.44 per cent and BNP Paribas gained 3.99 per cent, despite the possibility that current shareholders could be wiped out in the event of a rescue