Capital Markets

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Banks

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Property

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Financial

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Banks

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Categorized | Banks

$10bn fine reports hit BNP Paribas shares


Posted on May 30, 2014

Shares in BNP Paribas fell to their lowest level in eight months after reports that the Paris-based lender faces as much as a $10bn fine from US authorities for alleged sanctions violations.

The figure, which is far higher than the $3.5bn previously reported, raised concerns that the bank would have to cut its dividend and prompted calls on France’s socialist government to do more to defend the lender.

    BNP shares fell as much as 6 per cent on Friday. The stock is now down nearly 18 per cent since early February when the bank first said that it was taking a $1.1bn legal provision to cover the costs of any possible fines.

    The reports prompted France’s far-right National Front, fresh from an electoral breakthrough at European polls this month, to accuse the government of failing to protect France’s biggest bank against US regulators. “It goes without saying that the French bank cannot allow itself to pay such a colossal fine, the cost of which will inevitably be borne by its clients and savers,” said the party.

    The investigation by the US authorities focuses on whether BNP violated sanctions and anti-money laundering rules between 2002 and 2009 by disguising transactions in US dollars with countries including Iran, Sudan and Cuba.

    The settlement could include a suspension of BNP’s ability to clear US dollar transactions, which would be a blow to the bank, hurting its ability to serve clients of its wholesale bank as well as its large US retail bank.

    Investors and analysts expressed concern that if the fine came to $10bn the bank might have to cut its dividend or be forced to raise fresh capital.

    “We don’t know the exact size of the fine, but $10bn would be very bad news,” said Yohan Salleron, fund manager at Mandarine Gestion in Paris. “BNP may have to cut their dividend for this year and maybe next year as well,” he said.

    A $10bn fine would leave the group with a core tier one capital ratio of about 10 per cent, still above the 9 per cent required by regulators under Basel III rules, but would probably mean cancelling the dividend for 2014, analysts say.

    “BNP will probably propose to skip the 2014 dividend as a simple way to mitigate the damage,” said Jean-Pierre Lambert, analyst at Keefe, Bruyette & Woods. “This would not be popular with investors, many of whom are dividend orientated.”

    He added that it could also lead to BNP cutting the bonus pool for investment bankers and considering raising fresh capital. It comes in the midst of an EU “stress tests” of banks’ financial health.

    A note by Moody’s on Friday said that the bank faces a “potentially significant loss of client business in the US” if hit by criminal charges, with money market funds, pension funds and institutional clients all potentially taking business elsewhere.

    People in the bank have expressed frustration about how long the settlement process is taking and the uncertainty being created, with some wanting to settle as soon as possible to restore clarity for investors and clients.

    A deal, if one is reached, is still weeks away, and the fine size could change as part of the talks, people familiar with the matter say. The $10bn figures was reported in the Wall Street Journal on Thursday night. BNP declined to comment.

    The Wall Street Journal article said that BNP was looking to pay less than $8bn, citing sources close to the talks, but a person close to BNP said its negotiators had not mentioned an $8bn figure in the discussions.

    Christian Noyer, the governor France’s central bank, earlier this month defended BNP, saying that the lender had broken no European or French rules, adding that the case was being watched closely. “We have indeed verified that all the transactions were in line with EU and French rules, regulations and directives,” said Mr Noyer at a news conference. “So there have been no breaches.”