News and Information
French Banks Lead the Way In Greek Bond Exposure
Two French banks are at the top of the list in exposure to Greek bonds, which could expain why France is fighting so hard to maintain European support for Greece and prevent a debt restructuring. "Investing in euros and selling in drachmas."
In a letter to shareholders in their 2010 annual report, BNP Paribas Chairman Michel Pebereau and CEO Baudouin Prot, offered up a lofty view of the bank's role that goes well beyond regular consumer and commercial lending. "At BNP Paribas we remain convinced that we play a vital role in society by financing the economy and helping clients turn their dreams into reality," the quote read.
One economy that BNP Paribas has helped finance is Greece's. As a result, the bank is on the hook for $7.2 billion in government bonds of a country with fewer people than metropolitan Los Angeles, a national debt that is 125 percent of GDP and a socialist government that has made so many promises to its people in the past that they are now limited in how they can manage a crisis that has the country firmly on the doorstep of insolvency.
BNP Paribas and Societe Generale, two mammoth French banks that receive large amounts of government support, are holding more Greek bonds than any other bank according to information that recently appeared in the Wall Street Journal (see accompanying list). BNP Paribas holds $7.21 billion in Greek bonds and Societe Generale holds slightly over $6 billion, based on a currency conversion rate of $1.43 to one euro. Overall, French banks and institutions are holding 40 percent of the roughly $400 billion in Greek government bonds, more than any other country except Greece itself, according to a June 18th article in the WSJ.
France's banking exposure to the Greek crisis is significant because it underscores the extent to which credit has become politicized and could explain the intense lobbying by French President Nicolas Sarkozy for continued bailouts in order to prevent Greece from restructuring its debt, a move that would likely result in huge losses for bond creditors. In fact, the seemingly endless flury of talks and photo ops in places like Berlin, Brussels, Paris, Athens and apparently now Vienna may be centered as much around saving major creditors like France as they are in saving Greece.
Just today, a spokesman for the French government said: "We will not accept any payment incident or default."
How risky is the Greek bond market? Just over a year ago, in March 2010, after Greece's debt crisis had begun and the government was still trying to head off the need for a bailout, Greece sold $6.85 billion in 10-year government bonds that yielded 6.3 percent, although the risk was quite high. Last week, the yield on those same 10-year notes had risen to 18.021, a yield spread of 11.721 percent in just over a year.
CreditPulse was unable to determine through public bank filings or other media reports exactly how much of the March 2010 bond offereing BNP Paribas and Societe Generale purchased, if any at that time, but the fact that they hold more Greek bonds than any other bank suggests they may have been involved. Also, CreditPulse attempted to get bond-holder information from the Greek government but was told by the Head of Public Debt Directorate that "their agency doesn't monitor debt by holder or creditor."
On May 5, 2010 in a much anticipated press release to get details of its Greece exposure, BNP downplayed the matter by stating, "BNP Paribas has never bought a Greek bank. Therefore, it has no material exposure to the country's local economy." As of December 2010, BNP's Greek bond holdings represented only 5 percent of the banks total sovereign bond exposure of some $141.6 billion, according to the company's 2010 annual report. Societe Generale did not provide a breakdown of its sovereign bond holdings in its annual report.
Last week, Moody's Investor Service warned that it may downgrade the credit rating of three French banks -- BNP Paribas, Credit Agricole and Societe Generale -- on the prospect of a Greek default, according to an article in the WSJ. That same article also revealed that those three banks, along with a fourth French bank, Natixis, has about $91 billion in outstanding debt with the top money market funds in the United States.
By December 2010, the yield on the Greek 10-year bond had risen to 12 percent and the attractiveness of any exposure to the Greek bond market had begun to decline even among the wealthiest investors as evidenced by an interview with Paul Wharton, chief UK strategist at Deutsche Bank Private Wealth Management that appeared in efinancialnews.com. "Although you can earn some big yields in European peripherals you could also start off investing in euros and end up selling in drachmas."
BNP Paribas, based in Paris, is the largest bank in the world with assets of $2.95 trillion, according to the Bankers Almanac. Societe Generale ranks 11th with assets of $1.47 trillion. By comparison, Bank of America, the largest U.S. bank, ranks 12th in the world with $1.46 trillion in assets.
Both banks are publicly traded on the Euronext part of NYSE-Euronext. Euronext is a pan-European stock exchange that encompasses the stock exchanges in Belgium, France, Netherlands, Portugal and the United Kingdom. Euronext merged with the NYSE in 2007. BNP Paribas has a market capitalization of $91.5 billion; Societe Generale has a market cap of $42.6 billion, as of the date of this article.