French bank stocks drop after BNP downgrade
PARIS (Reuters) - Shares of BNP Paribas (BNPP.PA) fell alongside those of domestic rivals after Standard & Poor's cut BNP's credit rating and said French banks were vulnerable to a protracted recession in the eurozone.
Although BNP's smaller listed rivals Societe Generale (SOGN.PA) and Credit Agricole (CAGR.PA) escaped a ratings cut, their outlook was cut to "negative" from "stable" by S&P.
The agency cited an array of economic risks including an overheated property market in France and government savings reforms.
BNP, France's No. 1 listed bank, fell 3.1 percent to 38.39 euros in early Friday trade, behind SocGen and Credit Agricole, respectively down 3.7 and 3.4 percent.
They were among the biggest decliners in the STOXX Europe 600 bank index .SX7P, down 1.5 percent.
While French banks have been cutting costs and slashing their exposure to peripheral, crisis-stricken eurozone economies like Greece - helping their shares gain between 30 and 45 percent year-to-date - they have among the biggest cross-border exposures to Italy, which is in recession.
They are also exposed to regulatory uncertainty as France's Socialist government hammers out the terms of a campaign promise to curb banks' risky trading activities.
Around 40 percent of BNP's nominal balance sheet is made up of trading assets.
"S&P's negative view of French banks highlights increasing risks," Espirito Santo analyst Andrew Lim said. "In addition to these risks, we would ourselves add the likely implementation of some form of ring-fencing of trading books at the French banks."
Some investors shrugged off Friday's fall given the strong run French banks have enjoyed for most of 2012.
Despite Friday's drop, shares in SocGen are still up 57 percent, BNP Paribas' up 47 percent and Credit Agricole's up 99 percent since late July, by far the biggest gainers of the past three months on France's blue-chip CAC 40 index .FCHI.
"After a strong rise, on a short-term basis these stocks are more vulnerable to negative headlines," said Yohan Salleron, fund manager at Mandarine Gestion, who owns shares of BNP Paribas. "This does not change my long-term view on BNP Paribas."
($1 = 0.7716 euros)
(Editing by David Holmes)
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