U.S. News

French BNP Paribas Says Exposure to Subprime Limited

By Reuters

France's economy minister and the head of the country's biggest listed bank, BNP Paribas, met on Friday to discuss the U.S. subprime mortgage crisis, which has affected some of BNP's funds.

BNP said on Aug. 1 it was not directly hit by problems in the U.S. subprime mortgage market. However on Aug. 9 said it was freezing 1.6 billion euros ($2.15 billion) worth of funds because of the crisis, triggering a global drop in stock markets.

The head of BNP's asset management division said on Friday its exposure to subprime risk was limited and manageable as the French bank moved to reassure investors.

French Economy Minister Christine Lagarde also sought to calm nerves, saying the country's banks were in good shape.

She said she had met BNP's chief executive, Baudouin Prot, on Friday. She said earlier in the day that she had questions for him about how the bank had handled the news of its problems.

Funds to Re-open

Lagarde added that BNP Paribas was working to re-open the funds. Its move to freeze them had a knock-on effect on other banks' funds.

"I just met the chief executive of BNP, who gave me the raft of information which I needed concerning the three funds it managed. And I know that they are actively working on rapidly re-opening those three funds," she told Europe 1 radio station.

BNP Paribas declined further comment on the matter.

BNP Paribas shares have fallen sharply since its announcement about the three funds, but its stock rallied along with the rest of the market on Friday after the U.S. Federal Reserve cut its discount lending rate in a surprise move aimed at keeping credit flowing and calming nervous financial markets.

BNP Paribas shares were up 7.5% in early afternoon trade, outperforming a 3% rise in France's broader CAC-40 benchmark index and a 5% gain in the DJ Stoxx European bank sector.

Any Losses "Manageable"

Alain Papiasse, the bank's head of asset management and services, played down worries over its subprime problems.

"The direct exposure to subprime appears limited, and any losses should be manageable for the bank," he said on Friday on a conference call monitored in South Korea.

"We should be one of the most resistant institutions to subprime," he said, adding that BNP Paribas expected no risk to quarterly earnings from the potential exposure of these funds to subprime debt. "The risk to quarterly earnings is zero."

Stratege Finance fund manager Jacques Tissier said Papiasse's comments were reassuring but added he would continue to steer clear of financial stocks such as BNP Paribas for now.

"I am not going to add to my holdings until this crisis dies down," he said.

Even after Friday's rally, BNP Paribas shares have still fallen in value since the start of 2007.

Based on the latest prices, the stock has fallen around 3% during that period, while the European bank index has dropped 6%.