French banks may tackle balance sheets by offloading subsidiaries
France’s banks want to hold on to their choice subsidiaries. But economic pressure may force them to sell.
The banking sectors of two of the eurozone’s biggest economies, France and Italy, are in trouble.
At a recent press conference held by Carmignac Gestion, Eric Le Coz, the group’s deputy managing director, said the two countries were the eurozone’s “biggest problems”.
The ratings agencies have taken note. On 14 September, Moody’s decided to lower the ratings of Société Générale from Aa2 to Aa3 and Crédit Agricole from Aa1 to Aa2.
The rating of BNP Paribas was unchanged, although the three banks remain under review with a negative outlook.
France’s banks are desperate to prove their stability while the rest of the world eyes them nervously.
Rumours are mounting that in order to improve balance sheets, non-core subsidiaries, including wealth management and private banking arms, may be sold off from said banks.
BNP Paribas and Société Générale were early in announcing new targets for their balance sheets.
The former said €70bn of risk-weighted assets will be sold in order to reduce its balance sheet by roughly 10%.
Société Générale chief executive Frederic Oudea said his bank will free up to €4bn by cutting costs and selling assets by the end of 2013.
This will be mostly in the global investment management and services division, which includes the bank’s 25% share in Paris-based fund manager Amundi.
At the end of September France’s third largest bank, Crédit Agricole, also announced it would launch asset sales to boost liquidity and realign its focus on French and international retail banking.
Its corporate investment banking division will take the greatest hit, with gradual discontinuation of some businesses providing the bank with up to €18bn.
Baber Din, director in the M&A investment management team at Deloitte, says volatile or falling markets will impact asset management and private banking activities irrespective of whether they are owned by a bank or are independent.
But he adds: “The crisis is fast moving and the bigger concern will be the tipping point where customer fears about the stability of these banks leads to leakage of either assets under management for asset management divisions or customer deposits for the private banking arm.”
He believes if the crisis sharpens and concerns about governments or the EU not ensuring adequate capitalisation for these banks continue to mount, a flight of assets from the banks perceived as vulnerable “cannot be ruled out”.
The biggest risk posed to the asset management and private banking arms of the French banks is reputational, Din says.
“Many [non-core subsidiaries] will share a brand which is a reputational benefit in good times, but may be a hindrance in bad times.”
As the French banks seek to improve balance sheets, selling off non-core subsidiaries is a definite possibility, Din notes.
There have been some suggestions as to what these might be: French financial newspaper La Tribune said Credit Agricole’s credit business could be sold off to an American fund manager, while Reuters has claimed Société Générale is attempting to sell the futures and clearing brokerage it co-owns with Credit Agricole.