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Pas de deux

4 May 2012 By Pierre Briançon

BNP Paribas and Société Générale are nearing the end of their crash diets. At least, that’s what the French top banking duo hope after a first quarter in which they shrank their balance sheets following last year’s euro zone-induced funding squeeze.

BNP, France’s largest bank, says it has completed 80 percent of its asset disposal programme, which will be over by the summer. In the rush to deleverage and refocus on euro-denominated funding, both banks have offloaded a mixture of legacy assets, loans and corporate and sovereign bonds. Some buyers have even paid cash, as in the sale of BNP’s majority holding in real-estate group Klepierre, which allowed the bank to book a handy 1.5 billion euro capital gain.

Both banks can still rely on strong retail arms that show no signs of suffering from the euro zone’s economic woes – at least not yet. SocGen is arguably less vulnerable to a euro-wide recession if it eventually hits, as the lender is less exposed to the zone than its larger rival. Strip out the Klepierre sale, and both banks moved in sync during the quarter, with revenue down 6 percent at BNP and 5 percent at SocGen. Net profit at both banks fell by roughly 20 percent.

BNP, however, has a head start when strengthening its capital buffers. The bank says it will have reached a core Tier 1 capital ratio of 9 percent – assuming the full implementation of new Basel III rules – by January 2013. Under its current assumptions, BNP will get there this June. SocGen reckons its core Tier 1 ratio will be in the range of 9 percent to 9.5 percent at the end of next year.

Their association with the euro zone will continue to afflict BNP and SocGen for some time. And they may seriously suffer if France finds itself at the centre of the storm after its presidential election. Both banks trade at a fraction of their book value. But on that metric SocGen trades at a 34 percent discount to BNP. There’s no obvious reason for the discrepancy, save for the contrast between BNP’s traditional, robust model and SocGen’s sexier but more troubled past. Even for slimmed-down banks, reputation still matters.


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