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Capital fears hit BNP Paribas after report of $10 billion U.S. fine

Published 30/05/2014, 11:39
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By Alexandre Boksenbaum-Granier and Lionel Laurent

PARIS/LONDON (Reuters) - Shares in France's biggest bank BNP Paribas (PA:BNPP) fell sharply on Friday on concerns a possible U.S. fine for alleged sanctions-busting could be big enough to restrict its dividends and force it to raise money to boost its capital.

France's central bank said it was following the case "with the utmost attention" after a report in the Wall Street Journal said the U.S. Justice Department wanted $10 billion (5.97 billion pounds) from the bank - double the amount which had been previously reported.

BNP declined to comment on the report.

Shares in BNP dropped as much as 6 percent on Friday to their lowest in more than eight months, slashing almost $5 billion (2.98 billion pounds)off the bank's stock market value.

The decline took its loss to 18 percent since Feb. 13, when the bank first took a 1.1 billion euro ($1.5 billion) provision for a potential sanctions fine as part of a total litigation provision of 2.7 billion euros.

"We don’t dare accumulate more (shares) at this stage,” said Yohan Salleron, fund manager at Mandarine Gestion in Paris, who cut his exposure to the bank at the start of the year.

Analysts at Citigroup noted a fine of the magnitude reported would cut BNP Paribas' capital ratio to below 10 percent - a level seen as key to staying out the danger zone under tighter post-financial crisis guidelines.

The latest round of European Union "stress tests" of banks' financial health are under way with results due in October.

"This is not good news as we approach the stress tests, which BNP cannot afford to fail. A capital increase may very well be a solution," said Salleron.

"Potentially the bank may not pay a dividend for the next two years ... There is a very real reputation risk here. It could spook certain counterparties into staying away from BNP," Salleron added.

The U.S. Justice Department's investigation is a criminal probe into allegations that the French bank evaded U.S. sanctions against Iran and other countries for years.

COMPLIANCE FAILINGS The newspaper report said the final settlement could be less than $10 billion. 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.

HSBC (L:HSBA) was fined $1.9 billion in December 2012 for compliance failings in Mexico, which U.S. prosecutors said allowed drug cartels to launder money, and for enabling clients to avoid U.S. sanctions on dealings with countries such as Iran, Libya, Sudan, Myanmar and Cuba.

U.S. regulators were criticised after that fine for being too lenient on HSBC.

Investors also fear BNP could face being excluded from activities in the United States should it fail to accept a hefty fine and want to see a quick settlement to avoid continuing uncertainty.

France's government has said little about the issue since early this year when the issue 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 of Prime Minister Manuel Valls' office said it was being kept informed but the issue was "a matter between a private business and U.S. justice".

However, since Credit Suisse (VX:CSGN) agreed to pay more than $2.5 billion for helping Americans avoid taxes, French central bank chief Christian Noyer has expressed some concerns about U.S. prosecutors' pursuit of European banks.

A week ago Noyer, also a member the European Central Bank's governing council, 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 in response to a query about the latest reports: "The Bank of France has no comment to make for now since negotiations are still in progress. The governor of the Bank of France is following this case with the utmost attention."

The finance ministry and the office of Hollande also declined to comment.

The bank's stock was down 5.2 percent at 49.88 euros by 0918 GMT. ($1 = 0.7345 Euros)

(Additional reporting by Jean-Baptiste Vey and Brian Love, with Sudip Kar-Gupta and Steve Slater in London; Writing by Andrew Callus; Editing by David Holmes)

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