Societe Generale SA, France’s second-largest bank, issued a blanket denial of “all market rumors” after speculation that France’s creditworthiness was in doubt sent the shares down the most in more than 2 1/2 years.
The lender’s performance in July and early August shows it will be able to post “solid” results in the future, Paris-based Societe Generale said in a statement after the market closed today. The bank asked France’s market watchdog to open a probe into the origin of speculation that “gravely hurt the interests of shareholders.”
Societe Generale led European bank stocks to the lowest since the aftermath of the credit crisis, tumbling 15 percent to 22.18 euros in Paris, the biggest drop since Oct. 27, 2008. France’s top credit rating was affirmed by all three major rating companies as speculation Europe’s debt crisis would spread to the region’s second-biggest economy pushed the cost of insuring its government debt against default to a record.
“There is no indication whatsoever that France would waver in its determination to honor its obligations,” Dirk Hoffmann-Becking, an analyst at Sanford C. Bernstein Ltd. in London, said in a report to clients. “The resilience of the French banks against a freeze in the short-term funding market is very high,” he said, predicting that the sell-off in French banking shares “should be short-lived.”
European banks tumbled to the lowest since March 2009, when stocks fell to the weakest since the collapse of Lehman Brothers Holdings Inc. six months earlier. The Euro Stoxx Banks Index fell 8.9 percent to 109.87. BNP Paribas (BNP) SA, France’s largest bank, slid 9.5 percent to 35.61 euros and Credit Agricole SA (ACA) slumped 12 percent to 6.07 euros.
France’s market regulator, the Autorite des Marches Financiers, said it’s watching to ensure “good functioning” of markets with an eye toward financial shares in particular.
“Like in each period of turbulence, the AMF is vigilant,” the AMF said in a statement read in a telephone interview.
Societe Generale said it has only limited exposure to peripheral European sovereign debt and has fulfilled “almost all” of its funding needs for 2011.
The London interbank offered rate, or Libor, for borrowing in euros for three months was 1.5 percent today, according to the British Bankers’ Association. Societe Generale reported a rate of 1.46 percent for the same period.
The European Central Bank was forced to buy Spanish and Italian bonds today, according to four people with knowledge of the transactions. The amount of securities acquired by the central bank was smaller than in the past two days, said one of the people, who asked not to be identified because the trades are confidential.
The extra yield investors demand to buy 10-year French debt rather than German bunds jumped to 90 basis points, even though both carry AAA grades from the major rating companies. That spread is almost triple the 2010 average of 33, and compares with 17 in the second half of the previous decade.
Francesco Meucci, a spokesman for Moody’s Investors Service, said in a telephone interview that the country’s Aaa grade is “stable,” echoing his counterparts at Standard & Poor’s and Fitch Ratings.
French bonds are the most costly AAA government securities to insure as investors raise bets that top-rated euro-region nations may be next in the firing line after the U.S. was downgraded one notch to AA+ by S&P on Aug. 5. Credit-default swaps on France trade at more than double the rate to protect German securities, CMA data show.
Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
The slide in French banking shares “seems to be prompted by concerns about the U.S. downgrade and the idea that France could be next, but that’s something Standard & Poor’s has denied,” said John Raymond, a banking analyst at CreditSights Inc. in London. “I don’t see any reason for what happened today — it seems to be a fear effect.”
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