* Potential $10 bln US fine for BNP unsettles rivals
* "Unknown political risk" a worry - bank bosses
* Adds to worries over euro zone, Russia, trading slump
* US, Europe bank shares up about a fifth in past year
By Steve Slater and Laura Noonan
LONDON, June 6 A prized collection of French
paintings and furniture at a London museum provided a fitting
backdrop this week for a dinner attended by 40 big bank bosses,
where the conversation buzz was the huge fine potentially facing
France's biggest bank.
BNP Paribas may have to pay a fine of about $10
billion for allegedly evading U.S. sanctions, sources say, a
penalty that executives from banks in Europe and the United
States fear marks a step-change in the scale of punishments on
offenders in the financial services industry.
"It's a worry for any industry when there's an unknown
political risk that is impossible to quantify for," said one of
the bankers attending the dinner at The Wallace Collection, a
museum renowned for its displays of 18th century French
paintings, furniture, porcelain as well as European suits of
"No-one knows the seriousness of what's happened, but the
numbers (reported for the potential BNP fine) have gone from 1
billion to 5 billion to 10 billion, and people want to know
what's driving that."
BNP Paribas' problems cast a shadow over the entire meeting
this week of Institute of International Finance (IIF), a finance
industry body, which was attended by around 1,000 bankers,
regulators, hedge funds and other industry executives.
Bankers were taking stock at the meeting of progress made in
repairing damage to reputations and balance sheets from the 2008
Share prices point to some recovery in investor confidence
in the industry. U.S. and European bank shares are up about 20
percent on average over the past year and 58 percent in the last
two as the industry has stabilised since the crisis.
But investigations into alleged manipulation of foreign
exchange markets, a slump in trading revenues and job cuts plus
political tension in Russia have undermined optimism that banks
are well on the way to recovery.
And a cut in European Central Bank interest rates halfway
through the IIF event was a reminder of the weak euro zone
economy that has driven up banks' bad debts. As a result, more
of the region's banks could need to bolster capital as part of a
health check this year.
But it was the implications of BNP Paribas' massive
potential penalty and possible criminal convictions of other
banks that dominated chatter at conference drinks parties.
"Ten billion for BNP is ridiculous," Erste Bank
chief executive Andreas Treichl told Reuters.
Other banks, including the British co-hosts HSBC,
Barclays and Standard Chartered, have also
fallen foul of U.S. regulators in the past three years.
Analysts at Credit Suisse this week forecast Europe's banks
could end up paying $104 billion in litigation costs, nearly
double their previous estimate of $58 billion. The $104 billion
estimate includes $66 billion of losses to come.
These costs could hit banks' dividends and returns and may
also reduce the cash available to lend to businesses to get
Europe's economy moving.
French officials have said the scale of BNP Paribas'
possible penalty could hurt the euro zone's recovery and trade
talks with the United States. U.S. President Barack Obama has
dismissed any prospect he might intervene.
"Those fines are over-excessive, I think they are much too
high and they are not healthy at all," Jeroen Dijsselbloem, the
head of the group of euro zone finance ministers, said. He said
it was creating a lot of nervousness.
Baudouin Prot, chairman of BNP Paribas, did not join his
counterparts from HSBC, UBS, Barclays, JPMorgan
and others at the Wallace Collection dinner on Wednesday
night, held for the IIF's board of directors.
Prot also withdrew from speaking at the conference.
BNP Paribas' head of group public and regulatory affairs
Jean-Jacques Santini declined to comment on any aspect of the
The bank has set aside $1.1 billion to cover a potential
fine and said last month it could be far higher. It has declined
to comment on U.S. authorities potentially seeking nine times
its provision for an alleged breach of sanctions mainly
involving Sudan, Iran and other countries between 2002 and 2009,
sources have said.
"WALKING WILLINGLY INTO COURTS OF JUSTICE"
The conference's main dinner was held in London's neo-gothic
Royal Courts of Justice, which allowed BBC political editor Nick
Robinson, who was the main speaker, to point to the irony of
this choice of venue.
"Never before have so many bankers and so many financiers
walked willingly into the courts of justice," Robinson said.
But despite the coats of arms of numerous Lord High
Chancellors bearing down on them, the assembled financiers
seemed at ease.
Some finance industry executives were confident that the
industry had made substantial progress in cutting risk and
improving standards in the six years since the financial crisis.
"We have gone very far to put 'too big to fail' in the rear
view mirror and make the financial system, more safe, more
sound, more secure, more transparent and more accountable," Rob
Nichols, Washington D.C.-based head of policy organisation
Financial Services Forum.
But with senior bankers warning it is likely to take at
least two more years for banks to clear paying for past sins,
they acknowledged there may not be much relief when the IIF
meeting moves to Qatar next year.
(Additional reporting by Clare Hutchison and Marc Jones.
Editing by Jane Merriman)