The logo of French bank Société Générale is seen outside a bank building in Paris
The stock prices of French banks were falling on Monday, with investors fearing the consequences of censorship from the Michel Barnier government which adds a risk premium to French financial stocks.
BNP Paribas lost 2.05% around 3:33 p.m. GMT, Crédit Agricole SA dropped 1.93% and Société Générale 3.25% while the CAC 40 fell by 0.61% and European banks by 0.52%.
The vote for a motion of censure against the government of Michel Barnier, a scenario whose probability is increasing with the rallying of the National Rally to the left opposition, increases fears concerning the sustainability of the French public debt and its consequences on the rates as well as economic activity as a whole.
“There are several channels for transmitting the political situation on banks,” said Jérôme Legras, director of research at financial sector specialist Axiom Alternative Investments. In addition to the greater sensitivity of the banking sector to market variations, the economist mentioned “the fairly significant connotation of systemic risk on banks and exposure to sovereign debt, a depreciation of which could have consequences in terms of balance sheets on the banks.
The yield gap between the German Bund and the French 10-year OAT widened further on Monday after Michel Barnier held his government responsible for the draft Social Security budget. It climbed to 87.4 basis points around 15:43 GMT.
“The market movements currently observed in French banks almost exclusively reflect a risk premium requested by investors rather than a concrete reality on the income statements,” added Jérôme Legras. Most sovereign bonds held by banks, he explains, are not part of the accounting category subject to market value variations.
“The market often reasons the same way: rates are rising, which is not good for financial stocks. But there is truth in this reasoning through the transmission of political uncertainties and rising rates on macroeconomics”, added Catherine Garrigues, director of the Convictions/SRI equity strategy at Allianz GI.
According to her, what is happening in France is very worrying because the government's censorship affects the country's budgetary policy, which worries the markets and postpones or reduces the investment projects of businesses and households, straining the main activity of the banks. French companies with loans.
(Written by Bertrand De Meyer, edited by Kate Entringer)
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