More on why you need to Consider the Position of French Banks to Buy Canadian Oil Stocks

Just a quick note before I head off for the day.  The following was reported in the WSJ this morning.

“We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore,” a bank executive for BNP Paribas, who declines to be named, told me last week. “Since we don’t have access to dollars anymore, we’re creating a market in euros. This is a first. . . . we hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore.”

The full article is available here for subscribers.  For non-subscribers, FT published some thoughts here.

I’m surprised that so far the market is taking this in stride.

The article goes on to explain the source of the concern.

BNP, Société Générale and Crédit Agricole together hold nearly $57 billion in Greek sovereign and private debt, versus $34 billion held by the largest German banks and $14 billion at British banks. And then there is Spain and Italy. French banks held more than €140 billion in total Spanish debt and almost €400 billion in Italian debt as of December, according to the latest figures from the Bank for International Settlements. If either of these governments were to default on their debts, their banking systems could collapse and take the French system along with them. BNP, Société Générale and Credit Agricole all say that their finances are in order and the market worries are unfounded.

In the event of a Greek default the French will need to bailout their banks just as the Germans will need to bail out theirs.

The problem is that the French banks are so large compared to French GDP.  This is the question FT asks.

Now, let’s say the French government is forced to recapitalise its banking sector. What would that mean for its AAA rating?

It would not be good for it.

The situation in Europe is evolving and not in a good way.  I think that the market opening up today presents another good opportunity to reduce risk.