French bank funding fears are here to stay

In case you were wondering, the French word for seesaw is “balencoire”. If yesterday’s yo-yoing of French bank share prices is anything to go by, it should come in handy. Just don’t ask what “les plans de sauvetage du gouvernement” means – it doesn’t bear thinking about.

Shares in BNP Paribas closed up 7.2 per cent yesterday, having fallen some 12 per cent earlier to touch €23.05 – their lowest level since March 2009. Société Générale slid 8.1 per cent before jumping 15 per cent.

Fears the pair could face a dollar funding crunch are partly to blame, as is an impending announcement from Moody’s, which many expect to contain a downgrade of the sector.

BNP Paribas rallied after the bank scotched a report it could not access US dollar funding while SocGen jumped after its chief executive said its exposure to Eurozone sovereign debt was “manageable”. But it will take more than denials and promises to make fears disappear.

BNP Paribas is especially exposed to European sovereign debt, with around €75bn in Eurozone government bonds. Around €21bn of that is Italian government debt, accounting for nearly two per cent of the entire €1.2 trillion Italian bond market. Two per cent might not sound like a lot, but it is a huge amount of exposure for a single institution. Even combined, Spain’s banks hold only slightly more at €23bn.

For the record, “les plans de sauvetage du gouvernement” roughly translates as “government bailouts”, and the reason it doesn’t bear thinking about is this: the liabilities of BNP, Credit Agricole and Société Générale come to €4.7 trillion, or 250 per cent of French GDP.

Just try bailing that lot out, Sarkozy.