Investors and analysts are trying to formulate a plan on what kind of aid to give France should its increasingly troubled banking sector collapse. Despite this, French banks continue to say they do not need help or intervention.
This weekend, Bank of France Chairman Christian Noyer gave an interview saying that in 2008, France set up a support mechanism that could be used to save banks should “an extraordinary event” take place.
This pushed whispers of a potential bailout from speculation to actual worry among euro zone economic experts. On Monday, five different research notes from analyst firms spoke on the likelihood of the government boosting BNP Paribas, Societe Generale, and Credit Agricole with an injection of fresh capital.
One of the notes, from HSBC analysts, said, “We believe the longer the crisis continues, the greater the likelihood that the French government will opt for some form of market ‘shock therapy’ to reintroduce confidence in the French banks’ viability.”
All three of the banks that were part of the bailout discussion rallied on Monday, as part of a broader European surge in banks after months of shares on the downslide.
Societe Generale had lost 57% in the last three months, while Credit Agricole was down 55% before Monday’s rally.
Frederic Rozier of Meeschaert Asset Management said that Christian Noyer’s interview at the weekend played a part in the surge that bank shares saw on Monday.
“The sentiment that the (French) state is there to support the banks if needed explains the rebound even if the banks say they have no need for it,” said Rozier.
All three banks continue to refute any statements that they need a bailout or are planning to receive state aid, but Nomura analyst Jon Peace reminds us that emphatic denials also took place in 2008, up until the French government had to enact a recapitalization plan.