Model in distress

14 September 2011 By Margaret Doyle

BNP Paribas is offloading 10 percent of its risk-weighted assets. The euro zone’s largest bank may be strong enough to withstand further write-downs. But this summer’s U.S. funding market strains and market sell-off show it must do more to protect itself.

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BNP Paribas, the euro zone’s largest bank by assets, on Sept. 14 unveiled plans to reduce its risk-weighted assets by 70 billion euros, or some 10 percent. The news follows a similar scheme by local rival, Societe Generale, to cut both assets and costs.

Shares in both banks and Credit Agricole have plunged this year on fears over their exposure to euro zone indebted members, especially Greece, where SocGen and Credit Agricole run retail arms.

BNP and SocGen also sought to assuage fears about their dollar funding, following the August divestment by U.S. money market funds of euro zone bank paper. The French banks are seen as vulnerable because of their high reliance on short-term wholesale funding.

BNP asked the French market regulator to investigate after an opinion piece published in the Wall Street Journal on Sept. 13 alleged that an unnamed senior official at the bank said it was unable to borrow in dollars. BNP has said that its U.S. money-market funding fell by the equivalent of 10 billion euros, to 36 billion euros over August. However, it has substituted for those funds by other means, such as swapping euros into dollars.

Moody’s downgraded the ratings of SocGen and Credit Agricole by one notch on Sept. 14. BNP’s ratings were left unchanged. The credit agency is keeping all three banks’ ratings under review for a possible downgrade due to “the potentially persistent fragility in the bank financing markets. “

BNP’s shares was down 2.8 percent to 27.21 euros as of 11.10 GMT.

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