Senior BNP Paribas executives are to tour the Middle East in coming days in an attempt to raise fresh capital and shore up confidence in France’s biggest bank.
According to people close to the group, Baudoin Prot, chief executive, is adamant that he has sufficient reserves of both capital and liquidity. But he recognises that market jitters could worsen if nothing is done.
At the same time, BNP executives have urged regulators to carry out an emergency stress test in an effort to pinpoint exactly where the weaknesses are in the French banking system. That could lead to some kind of orchestrated injection of state funds, bankers say.
But BNP is keen to secure a commercial investor instead. The plan, which is being touted to investors in Qatar and Abu Dhabi, is at an early stage and details remain sketchy. People involved have estimated it might amount to as much as 2 billion euros ($2.7bn).
Tensions in the euro zone banking system were highlighted on Wednesday by the International Monetary Fund, which warned that the global financial recovery had been thrown off course by political and sovereign debt turmoil in Europe and the US.
In its global financial stability report, released ahead of the fund’s annual meetings, IMF staff confirmed their estimate that Europe’s sovereign debt crisis had reduced the value of European Union banks’ government bond holdings by 200 billion euros.
The report adds to a rising chorus of worldwide alarm this week that the slow and uncertain resolution of the Greek sovereign debt crisis risks spilling over into a serious global economic dislocation.
BNP’s exposure to peripheral euro zone sovereign debt is the highest among French banks. Its core tier one capital ratio – a key measure of financial strength – is 9.6 percent, towards the lower end of capital buffers held by European banks. The bank last week launched a 70 billion euros asset sale to boost its capital and reduce funding needs.
Mr Prot told Les Echo on Wednesday that BNP would meet tougher Basel III requirements by “shrinking the size of our balance sheet, rather than via a capital increase”.
The BNP delegation will comprise of members of the bank’s board, along with specialist advisers including Jacques de Larosière, chairman of the strategic committee of the French treasury, according to people close to the bank. BNP declined to comment.
Along with Société Générale and Crédit Agricole, BNP has been punished by investors recently, largely because of nervousness about the banks’ exposure to the likes of Greece and Italy.
BNP’s share price has fallen by half this year.