BNP Paribas , the largest of France's embattled banks, is to sell 70 billion euros ($96 billion) of assets to shore up capital and cut funding needs, and perhaps stay the credit rating cut suffered by its main rivals.
Continue Reading Below
BNP said its asset sales would reduce its balance sheet by around 10 percent and as part of the plan would cut its U.S. dollar funding needs by $60 billion by the end of 2012.
With concern over French banks' exposure to the euro zone debt crisis growing, Moody's Investors Service cut the credit ratings of rivals Societe Generale and Credit Agricole , but spared BNP, at least for now.
Moody's said it would extend its review for a possible downgrade of BNP's long-term debt and deposit ratings.
"Surely it can only be a matter of time before BNP Paribas follows in their wake as the bank announces a restructuring plan to increase capital, probably in order to head off a downgrade at the pass," said CMC Markets analyst Michael Hewson.
BNP shares were down 2.7 percent by 1215 GMT after earlier losing nearly 10 percent. SocGen was down 3.7 percent and Credit Agricole firmed 1 percent. The European bank sector rose 0.9 percent.
Continue Reading Below
French banks are fighting to restore confidence after suffering a sharp summer sell-off, driven by fears they are too dependent on wholesale market funding and would be ill equipped to cope with the fallout from a Greek debt default.
The industry's main regulator, Bank of France Governor Christian Noyer, called the Moody's downgrades "very small", noting the ratings agency said the banks had enough capital to cover any losses.
But there remains intense scrutiny on whether the banks need to bolster capital to restore investor confidence, possibly with help from the French government.
SocGen is seen as most in need, and comments by CEO Frederic Oudea at a conference on Tuesday indicated he was in talks with the French government on the issue.
"He (Oudea) is not ruling anything out, and will take messages back to French government," said Jeremy Sigee, analyst at Barclays Capital, which hosted the conference.
"If there is to be a capital raise -- if that would help -- Mr Oudea thinks that it should be a fairly small amount and should be ideally coordinated and done with other French/European banks on a similar basis at the same time," Sigee said in a note on Wednesday.
BNP CEO Baudouin Prot is speaking at the conference in New York later on Wednesday. His speech will not be webcast, though slides of the presentation showed its plans to deleverage and reduce costs.
"These plans ... are things that we will certainly take into account with our review. They effectively signal the impact of more fragile market conditions on banks' strategies," Moody's analyst Nick Hill said in an interview.
But many said the need for capital remains.
"I can't see how the French banks can get through all this without some fairly robust capital-raising exercise," said Andrew Cornthwaite, head of investment banking at Renaissance Capital, who expects major bank capital raising in the west, partly state funded.
"The French have put virtually nothing into their banking sector," he told the Reuters Russian Investment Summit.
Antonio Guglielmi, an analyst at Mediobanca in London, added: "I haven't seen any bank in Europe managing to avoid capital raising through asset disposals, and I don't see why it should work now with the market at the bottom."
Earlier this week French Industry Minister Eric Besson said it was "premature" to talk about any kind of partial nationalisation of the French banking sector.
Such a move would come at a heavy price for the French government, which could jeopardise the country's prized triple-A sovereign credit rating, already seen as vulnerable after Standard & Poor's downgraded the United States.
France's banks are more exposed than rivals to a jump in U.S. dollar funding costs recently, forcing them to diversify their sources. Key U.S. money market funds have cut or shortened the duration of their lending to French and other banks due to concern about the euro zone debt crisis.
By selling assets and freeing up capital, BNP said it would be in shape to reach a core Tier 1 ratio of 9 percent by 2013, under the tougher new capital requirements.
BNP said it could be hit in the third quarter from its Greek debt exposure, the highest among France's lenders. A 55 percent writedown of its holding would lead to a "manageable" loss before tax of 1.7 billion euros, it said. BNP's first-half pretax profit was 7.4 billion euros.
Analysts estimate SocGen will have to sell around 40 billion euros in risk-weighted assets to meet its own targets. ($1 = 0.731 Euros) (Additional reporting by Blaise Robinson, Christian Plumb, Daniel Flynn and Vicky Buffery, Steve Slater in London and John Bowker in Moscow; Editing by James Regan and Will Waterman)