The BNP attacked. Worry about the largest French bank?

This is an article from the Investing site that reviews the concerns of the markets (and savers) regarding the health of the big banks, particularly the European ones.

After Credit Suisse, it is the French banking giant that is under pressure. In fact, it was BNP Paribas shares that shortened the most on Monday, with a total of $1.68 billion in bets against the bank’s shares, corresponding to the highest percentage among the 17 banks for which data is available. , according to data analytics firm S3. .

Last week it was the Credit Suisse stock that was massacred on the stock market and the management of the great Swiss bank had to spend the weekend reassuring about the solvency of the establishment.

Investor concern over Credit Suisse has sent its shares tumbling in recent days, but short sellers appear to be interested in another bank.

Should we be worried?

The answer is yes and no, and it’s important to remain objective and nuanced.

You have to look at the bank’s assets, its solvency ratios.

But looking only at that is not taking into account the potential risks of an accident, for example (and not randomly) in the derivatives markets with a position of these banks that could be catastrophic in the event of an extreme event in the markets, which is what we are living with the energy crisis!

Nor does it take into account the increase in the cost of risk with the fall of industry and companies in Europe. But all the big banks obviously finance the economy. This is called the cost of risk.

If bankruptcies increase in the real economy, the cost of risk, that is, non-repayable loans to banks, will also increase.

At the end of the day there will be a significant drop in earnings and potentially, if the crisis is as deep as it is long lasting, a possible capital problem. But that will happen later and it is a phenomenon that will gradually materialize in the next 12 to 24 months if it has to happen and we will see it in the study of the balance sheets of the banks that I monitor for my subscribers of the STRATEGIES letter.

We are not there.

A logical and predictable drop in prices

It is normal for bank share prices to come under pressure as the markets reset their earnings forecasts significantly lower for banks. Less earnings, less dividends, so prices headed lower and sold short.

Therefore, there is nothing to be really surprised about.

Finally, if the situation were really bad, a bank like BNP is a systemic bank, simply too big to fail, because if the public authorities liquidate a bank of this size, the entire European banking system would collapse.

So there is no need to start running in all directions. However, this should remind us of the necessary distribution of risks and the essential diversification of both your assets and your assets.

Those who are asking questions and want to go further, can subscribe for only 98 euros to my STRATEGIES Letter and will have access not only to more than 85 files already published but also to the next 12 months, but above all it will save you from doing stupid things that will cost you much more than 98 euros, because a bad investment is usually counted in thousands of euros of losses ! To invest in your wealth management and in the STRATEGIES letter, it is here.

Get ready!

Carlos Sannat

“Insolentiae” means “impertinence” in Latin.
Write me at charles@insolentiae.com
Write to my wife helene@insolentiae.com

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