Qatar in talks for possible stake in BNP Paribas

The Gulf state of Qatar is in talks with BNP Paribas on taking a possible stake in France’s biggest listed bank, a source close to the deal based in Qatar said on Wednesday.

Resource-rich Qatar has also been holding similar talks with other French banks, which have seen their share prices halve over the summer on fears they are undercapitalised and overleveraged in the face of the eurozone debt crisis.

“They (Qatar) have been talking to banks across France, given the tremendous need for capital,” the source said, speaking on condition of anonymity.

[caption id=“attachment_89466” align=“alignleft” width=“380” caption=“Resource-rich Qatar has also been holding similar talks with other French banks, which have seen their share prices halve over the summer on fears they are undercapitalised and overleveraged in the face of the eurozone debt crisis. Reuters”]  [/caption]

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A Mideast investment in French banks would have echoes of the peak of the financial crisis in 2008, when Qatar and Abu Dhabi bought stakes in British bank Barclays as part of a capital increase that helped the lender stay independent while rivals Royal Bank of Scotland and Lloyds ended up being part-nationalised.

A spokeswoman for BNP Paribas declined to comment.

Market talk earlier on Wednesday about a possible Qatar investment boosted BNP’s shares, before they closed down 1.9 percent, giving the bank a market value of 29.54 billion euros ($40.4 billion).

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A spokeswoman for Societe Generale also declined to comment while spokeswomen for Credit Agricole and Natixis were unavailable for comment.

An investment from Qatar would be positive news for French banks after months of intense selling pressure forced BNP and SocGen to announce tens of billions of euros in asset sales to free up capital.

Investors and analysts have been increasingly speculating that the French government may be forced to step in to stop the rot, which has been exacerbated by fears that a sharp ramp-up in US dollar money-market funding may spill over into a broader European bank liquidity crunch.

Although a parade of politicians, government officials and banking regulators have insisted for months that French banks are solid and have no need for fresh capital, several banking sources said they had heard private rumblings that a state injection of preference shares - interest-bearing instruments halfway between debt and equity- was being discussed, though how concretely was unclear.

“This would allow the state to put its finger in without the full cost (of core equity),” a Paris banking source said, though he added that such a move might not be enough to reassure the market and could put France’s “AAA” credit rating at risk.

“The state is conscious of the difficulty of taking action right now,” the source said. “Intervening could affect its ‘AAA’ rating, and on top of that taking action unilaterally would send a terrible signal after saying so often that there is no problem.”

The French finance ministry was unavailable for comment.

BNP “OPERATING NORMALLY”

Separately, BNP’s chief executive told French daily Les Echos the bank would be able to meet tougher capital rules under Basel III on its own steam rather than by raising additional funds.

Baudouin Prot, who is expected to retire as CEO later this year, also said that concern about an Italian sovereign debt default was unfounded and that the bank was fully equipped to handle a default from debt-wracked Greece.

Shares of BNP and other French banks have dived over the past three months on fears they are undercapitalised, overleveraged and ill-equipped to face the unfolding eurozone debt drama.

“(Meeting Basel III) will be achieved via a double effort of setting aside profits and shrinking the size of our balance sheet, rather than via a capital increase,” Prot said in an interview posted on Les Echos’ website Wednesday evening.

BNP shares earlier closed down 1.9 percent after traders cited market talk that French banks including Societe Generale and Credit Agricole would raise capital to shore up their balance sheets.

A BNP spokeswoman said the bank did not need to be recapitalised, reiterating a previous statement by Chairman Michel Pebereau.

BNP is seeing loan growth and is operating without problems aside from a sharp slide in its shares, Prot said, who cited 6 percent credit growth in France at end-August without giving further details.

“(BNP) is operating entirely normally,” said Prot. BNP’s shares have slumped 55 percent since the end of June.

The bank, among the biggest in Europe, holds substantial exposures to eurozone sovereign debt. At end-June 2011 it held 4 billion euros ($5.5 billion) of Greek debt and 20.8 billion euros of Italian debt in its loang book.

“Where Greece is concerned, we can withstand any outcome,“Prot said.

Commenting on Italy, which was recently hit by a credit-rating downgrade, he said fears of a sovereign default were “unfounded” but that the bank continued to manage its portfolio of Italian debt “proactively.”

Asked whether a new plan to sell 70 billion euros’ worth of assets to free up capital would also involve cutting jobs, Prot said: “Our corporate and investment bank is constantly adapting to the evolution of the market and its environment. Our adjustment plan will doubtless induce us to shrink the size of certain platforms.”

Reuters