French banks’ rising profits fail to reverse sell-off as political fears bite
BNP Paribas, SocGen and Crédit Agricole reported strong third-quarter earnings but have been hit by investor nerves over political and economic uncertainty
France’s top banks have had €39bn wiped off their valuations since the start of September as investors fret over the impact of political uncertainty and the country’s fragile economy.
BNP Paribas, Société Générale and Crédit Agricole sought to reassure markets this week, emphasising to investors their healthy loan books and limited exposure to French sovereign bonds as they reported a rise in third-quarter profits.
The lenders were helped by booming equities trading, while their French retail banking businesses benefited from higher interest rates. Despite the three banks each matching or exceeding analysts’ expectations, the results did little to boost their share prices.
By Friday any post-earnings gains were erased when Crédit Agricole, the last of the three to report, sounded a note of caution about the economic outlook, just as official figures revealed France’s GDP unexpectedly contracted 0.1 per cent in the third quarter, underperforming large EU neighbours.
“What we see today is that investment project requests in France — though it’s also true for the broader Eurozone — are slowing,” said Crédit Agricole’s chief executive Olivier Gavalda, adding that the bank had a prudent approach to risks and strong buffers against shocks.
“There’s a strong chance credit demand will be slower and that maybe credit risks will tick up . . . we don’t have tailwinds on our side.”
Shares in Crédit Agricole, which has the largest retail presence of the trio and is the most directly exposed to the French economy, fell 2 per cent on Friday. The stock has lost almost a fifth of its value since the start of September, when investors’ worries about France’s fiscal position became more acute.
In that time, France’s three largest listed lenders have underperformed the Euro Stoxx Banks index, which tracks the biggest lenders in the Eurozone. The French lenders’ share prices have each declined by between 16.5 per cent and 19.3 per cent in that period, while the index has dropped 13.4 per cent.
“Earnings have shown [French banks] are decent, quality businesses,” said Emmanuel Cau, head of European equity strategy at Barclays. But he added that “it’s not the banks per se” which investors are worried about, “it’s exposure to France as a broader theme”.
“What will be the trigger that makes people more comfortable to own French risk? There is a lack of positive catalyst in my view,” Cau said.
In October, France’s long-term borrowing costs hit 5 per cent for the first time in more than two decades as worries mounted over the country’s fiscal deficit, a presidential election next year, the government’s ability to pass a budget for 2027 and violent street protests.
Even BNP Paribas, which has a large presence across Europe and generates less than 10 per cent of its pre-tax profit in France, has been caught up in the sell-off, shedding more than 17 per cent since the start of September.
Mislav Matejka, head of global and European equity strategy at JPMorgan, said that even after positive third-quarter results, the bank did “not think investors will be able to sustainably re-engage with French exposure until the main event risks are behind us”.
The three banks also reported broadly stable cost of risk — a measure of the money set aside to cover problem loans — and sought to reassure markets they had pre-funded some of their financing requirements for 2027.
“It’s hard to carry a French name at the moment,” said Oddo BHF chief economist Bruno Cavalier, although he said European banks were far less exposed to sovereign debt than they had been at the height of the Eurozone crisis 15 years ago. “We’re no longer in the doom loop of back then, though it’s hard to completely erase the sovereign-banking nexus.”
The three banks disclosed a collective direct exposure of just over €50bn to French government bonds this week, a fraction of their combined balance sheets, while saying the vast majority of these were held to maturity on their books, meaning they will not have to take a hit from revaluing them.
Marina Zavolock, head of European equities strategy at Morgan Stanley, said in a note to clients that French banks — and other domestically exposed stocks — had been “oversold”. Zavolock said there is “limited direct exposure to [French government bond] spread widening.”
Sonja Förster, a credit analyst at Morningstar DBRS, said the “underlying environment is actually very good for French banks”, pointing to lenders finally profiting from rising interest rates as new borrowers take on loans in a market geared heavily towards fixed-rate loans.
At Crédit Agricole, which reported an 11 per cent year-on-year rise in profits to €2bn for the third quarter, net interest income — earnings from loans minus deposit costs — in France was up 18 per cent from a year earlier. SocGen, which has undergone a turnaround under CEO Slawomir Krupa, also reported good momentum in its French retail bank.
Asked if bankruptcies and unemployment might rise in France, potentially hurting its commercial and personal bank, BNP Paribas chief executive Jean-Laurent Bonnafé sought to play down any concerns.
“We are very well positioned, we are absolutely not afraid (of) this new cycle,” Bonnafé said.