PARIS/LONDON: Fears that a looming US fine on BNP Paribas could be big enough to force it to raise capital and restrict its dividends hit France’s biggest bank yesterday, driving its shares to their lowest level in more than eight months.
France’s central bank said it was following the case “with the utmost attention” after a report in the Wall Street Journal said the US Justice Department wanted $10bn from the bank - double the amount previously reported.
BNP declined to comment on the report.
Shares in BNP dropped as much as six percent to their lowest in more than eight months, slashing almost $5bn off the bank’s stock market value. The decline took its loss to 18 percent since February 13, when the bank first took a ¤1.1bn ($1.5bn) provision for a potential sanctions fine as part of a total litigation provision of ¤2.7bn.
Analysts at Citigroup noted a fine of the magnitude reported would cut BNP’s capital ratio to below 10 percent — a level seen as key to staying out of the danger zone as the European Union carris out “stress tests” of banks’ financial health.
“This is not good news as we approach the stress tests ... A capital increase may very well be a solution,” said Yohan Salleron, a fund manager at Mandarine Gestion in Paris who cut his exposure to the bank at the start of the year.
“Potentially the bank may not pay a dividend for the next two years ... There is a very real reputation risk.”
The US Justice Department’s investigation is a criminal probe into allegations that the French bank evaded US sanctions against Iran and other countries for years.
The newspaper report said the final settlement could be less than $10bn. Still, the multibillion dollar figure would put the fine among the largest penalties imposed on a bank and is far higher than what BNP has provisioned for.
Investors also fear BNP could face being excluded from activities in the United States should it not accept a hefty fine. They want a quick settlement to avoid further uncertainty.
France’s government has said little about the issue since early this year when it first came to a head. President Francois Hollande was sharply critical of banks and their part in the financial crisis ahead of taking power in 2012, calling the world of finance his “main adversary”.
An official at Prime Minister Manuel Valls’ office said it was being kept informed but the issue was “a matter between a private business and US justice”.
However, since Credit Suisse agreed to pay more than $2.5 billion for helping Americans avoid taxes, French central bank chief Christian Noyer has expressed concerns about US prosecutors’ pursuit of European banks.
A week ago Noyer said: “Obviously we are very attentive towards risks related to what could be a development in American jurisprudence.” A central bank spokeswoman said on Friday Noyer was following the case “with the utmost attention”.