BNP Paribas reports big profit as France shrugs off ′too big to fail′ fears | Business| Economy and finance news from a German perspective | DW | 04.11.2010
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BNP Paribas reports big profit as France shrugs off 'too big to fail' fears

France's BNP Paribas bank reported a 46 percent jump in 2010 third-quarter profits over the same period last year. Now the world's biggest bank by assets, it has adopted a confident swagger, despite the recent crisis.

BNP Paribas headquarters

BNP Paribas is the world's biggest bank by assets

BNP Paribas reported on Thursday a 46-percent rise in profits for the third quarter and said it would not have to raise more capital to meet new banking standards. It is another round of good news for a bank which has 34.47 percent in the past three years, becoming the world's biggest when measured by assets.

The Paris-based bank has assets of 2.25 trillion euros ($3.21 trillion).

But as the banking behemoth promises a positive end to this year, some question if it is wise to allow banks to become big enough to put entire sectors, or even economies, at risk should they fail. That was the fear in the United States in the recent financial crisis that nearly brought down the banking system there and led to new banking regulation signed into law this year.

But the French appear to be taking a somewhat more laissez-faire attitude, despite concerns about continued risks to financial stability related to Europe's sovereign debt crisis.

"I think the French are nervous about it, but they are ignoring the possible problems," Manfred Jaeger-Ambrozewicz, a banking expert at the Cologne Institute for Business Research, told Deutsche Welle.

Size doesn't matter

For now, BNP is smiling and the French government doesn't appear eager to step in to break up the bank or impose new regulations, as some other countries are.

Swiss emblem bank deposit box

Switzerland is toughening up capital requirements for its banks substantially

Switzerland is introducing new rules that will curb risks from its biggest banks, calling for substantially higher capital requirements than international rules require.

Even Britain, which has traditionally been hands-off regarding its banks, is examining whether some of its biggest financial institutions should be broken up. In the US, the new Dodd-Frank Act prohibits banks from trading from their own account.

But French bankers have dismissed concerns about size.

"Size isn't limited to risk," Frederic Oudea, the CEO of Societe Generale, told a parliamentary hearing. SocGen is France's third-biggest bank by assets.

New capital? Non merci

French bankers have also balked at new rules on capital.

"Asking for more capital is not necessarily more virtuous if it's simply a counterparty to more risk," Bank of France Governor Christian Noyer said in mid-October. "If banks in some countries have very risky profiles and regulators ask them to hold more capital, it's their problem."

BNP Paribas CEO Baudoin Prot

BNP Paribas' Prot is one of the few French bank heads to have kept his job through the crisis

New banking rules by the Basel Committee on Banking Supervision will gradually require banks to hold greater capital buffers to absorb potential losses.

Called Basel III for short, the new regulations will force banks to hold top-quality capital totaling 7 percent of their risk-bearing assets, more than triple what they do now. Lenders have until 2019 to implement some of the rules.

On Thursday, as BNP Paribas reported its big profits, it also ruled out a capital increase to meet the new industry rules, saying its own revenue generation would allow it to comply with the Basel III requirements.

"No capital increase whatsoever," BNP Chief Executive Baudouin Prot told Reuters. "I'm very confident on the capital position."

Several banks across Europe have gone to investors for fresh equity as the tighter capital requirements loom.

National champions

France has a tradition of government involvement in the private sector. Since the 1960s, Paris has intervened to save the so-called "national champions," companies seen as essential to the national economy or the country's global reputation, and which Paris sees as too important to fail.

In 2004, French President Nicolas Sarkozy led a state bailout of Alstrom when he was finance minister and encouraged the nation's two biggest drug makers to merge in order to put off a bid from Swiss competitor Novartis.

The Gallic crowing around banks these days could have to do with protecting prestigious French companies, according to Jaeger-Ambrozewicz.

"I can imagine that the French don't want to break up this bank," he said. "They are saying, 'this is our national champion, the number one in the world by assets.'"

If it's going well, Paris might think the best intervention is no intervention, according to Nicolas Veron of the Brussels-based think tank Bruegel.

Societe General branch

Paris hinted it would intervene in the case of Societe General back in 2008

But that doesn't mean the French government has adopted a policy of allowing the market to operate freely in every case. He pointed to Societe Generale's problems in 2008 when it lost 5 billion euros due to a "rogue" trader. During the crisis, the French prime minister insisted that no matter what, the bank would remain French.

"I would argue that economic nationalism is at least as strong in the banking sector in France as in other sectors," Veron told Deutsche Welle.

Doing well

French banks in general, and BNP Paribas in particular, weathered the financial crisis better than their rivals in other countries. Banking assets in France rose 41 percent between 2005 and 2009, to 7.16 trillion euros, according to the European Central Bank. That is almost four times France's GDP.

"(BNP Paris) is one of those banks which emerged from the crisis as a winner, as things currently stand. It certainly strengthened its European market share and didn't take any visible big hits," Veron said.

The four biggest French banks - BNP Paribas, Credit Agricole, Societe Generale and Groupe BPCE - all passed EU stress tests in July. The inquiries looked at whether banks had enough capital to outlast an economic slowdown and sovereign debt crisis, although some analysts argued the tests were not rigorous enough.

That makes analysts like Jaeger-Ambrozewicz slightly worried. He said he fears that banks, both in France and in Europe as a whole, might be overconfident and not have learned from the crisis.

"Banks now look healthier than they really are. The problem of systemic risk has not really been addressed yet," he said. "The question is how to do that without destroying the big banks or causing them real problems."

Author: Kyle James

Editor: Jennifer Abramsohn

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