BNP Paribas, the world’s biggest bank, needs to raise capital as a result of the increase in Tier I capital requirements, according to Societe Generale.French banks are now at the centre of the European banking crisis as a result of being behind everyone else in the capital raising race.
And while German banks have finally decided to address their problems, France’s leadership has denied their banks even have a problem, with Bank of France Governor Christian Noyer saying banks in his country will not need to raise capital in the wake of this summer’s stress tests.
Societe Generale analysts disagree, and see BNP Paribas as needing €7 to €10 billion in capital by the end of 2012 to hit Tier I capital requirements.
BNP and other French banks, however, have little to worry about as a result of the ECB’s rate hike.
From Societe Generale:
It is also interesting to note that during the previous period of rising rates, French banks hardly underperformed Italian and Spanish banks (the main beneficiaries of rising rates) in either of the months leading up to the event (January to December 2005) or the period of rising rates (2006-2007).
Although this development could add more pressure on French banks, we do not expect it to be a major driven of structural underperformance.
There are the potential for knock on effects from the rate hike, that could cause further problems in Europe’s banking sector, if it impairs the ability of mortgage owners or other debtors to pay their bills.