RLPC-Focus on French banks' lending appetite as CDS soar

Wed Aug 10, 2011 1:29pm EDT

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Aug 10 (Reuters) - Any reduction in French banks' risk appetite as their Credit Default Swaps (CDS) and funding costs soar could significantly reduce liquidity in Europe's syndicated loan market, senior bankers said on Wednesday.

BNP Paribas , Societe Generale and Credit Agricole CIB's credit default swaps widened sharply on Wednesday amid fears that France could soon lose its triple-A credit rating.

By 1510 GMT BNP Paribas' five-year CDS had widened 35 bps to 246 bps, Societe Generale's CDS was 65 bps wider at 334 bps while Credit Agricole CIB's CDS had widened 23.5 bps to 265 bps, according to Markit data.

Higher CDS prices imply a rising cost of funds for banks, which in turn makes it less profitable to lend to companies at low rates, banking sources said.

The three banks have been core providers of liquidity to the syndicated loan market despite highly volatile market conditions and have dominated the loan league tables this year and in 2010, topping Thomson Reuters LPC's Europe, Middle East and Africa bookrunner league table in the first half of 2011 and full-year 2010.

At the end of June 2011, BNP Paribas topped the league tables. The bank's share of the 128 loans it was involved in totalled $29 billion, Credit Agricole's share of 80 deals totalled $24.2 billion and SG's tally of 80 deals came to $20.7 billion.

BNP was also the biggest arranger of loans in 2010, when its share of 200 deals came to $50 billion.

The three banks have played leading roles in nearly all high-profile corporate loans in the last 18 months as loan pricing has fallen heavily to less than 40 basis points - well below many banks' triple-digit cost of funds.

"They (French banks) can't carry on being this gung-ho when there is such a squeeze on funding costs and capital," one senior loans originator said.

The share prices of the French banks also dipped dramatically on Wednesday. Shares in BNP Paribas closed 9.5 percent down, shares in Credit Agricole were down 11.8 percent, while shares in Societe Generale were down 15 percent. (Reporting by Alasdair Reilly)

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