In one of my recent weekly columns for the IFR titled “Meep, meep…”, I likened the relationship between US regulators and foreign banks to that between the Road Runner and Wyle E. Coyote. If the latter ever caught the former and ate him, the story would be over.
Equally, bank fines and supplementary punishment should be painful but never quite enough to threaten the existence of the institution in question. The figures and possible sanctions being bandied about in the case of Banque Nationale de Paris might not quite break the bank’s back but they certainly could come close.
Talk is of a fine of US$10bn along with restriction on its ability to clear US Dollars. BNP’s market cap is around €63.4bn which equates to US$86.3bn. Thus the fine would be equivalent to half of the total value of the company at its current share price of €51.00. Net income for the 12 months leading up to March 31 was €4.916bn which is about US$6.7bn.
My distaste for the high-handed manner in which the yanks have gone about combating their budget deficit at the expense of non-US entities, both financial and non-financial, has been growing and I am very much hoping that President Hollande and his politically shrewd and experienced foreign minister, Laurent Fabius, will not take this lying down
That the bank offended against US sanction rules is not as such in dispute and that it’s permission to operate in the US is subject to adhering to those rules is also clear but what gives US regulators the right to help themselves to the best part of a year and a half’s worth of net income beats me. Not only that but by taking out that cash, America also deprives sovereign France of the tax revenue which those earnings would have generated for the Trésor and which it truly cannot do without. Paris in not in a position to forego that income and therefore it must stand up and defend BNP against the transatlantic onslaught.
I speak passable French and worked for BNP for eight largely happy (though financially pretty unrewarding) years. I have my issues with the “frogs” and enjoy nothing more than seeing them being given a thoroughly good hiding on the rugby pitch but in the case of this fine I have to raise my hand and express my doubts. My distaste for the high-handed manner in which the yanks have gone about combating their budget deficit at the expense of non-US entities, both financial and non-financial, has been growing and I am very much hoping that President Hollande and his politically shrewd and experienced foreign minister, Laurent Fabius, will not take this lying down.
It’s the sovereignty
It is, in my opinion, not just about BNP but about the very principle of how far America’s sovereignty should stretch. The muppets in Brussels keep telling us that the EU is a bigger, more populous and more valuable trading entity that even the US but when it comes to facing Uncle Sam over who can trade with whom and why the lion proves to be no more than a mouse in disguise. Two and a half thousand years ago the Greek poet Pindar wrote “War is sweet to those who have never experienced it….” but if something of a trade war were to erupt in the defence of BNP and its shareholders who are the ones who will innocently pay for something they knew nothing of – and, by the way, myself included – then so be it. Enough is enough.
Not that we foreigners are alone. The SEC fined Bank of America for misleading its shareholders over details of the acquisition of Merrill Lynch. Thus the shareholders – once again myself included – were ourselves asked to pay up for having been misled by the management of our own company. How ridiculously stupid is that? Yet nobody seemed to try to object as the authorities make it clear that fighting back only results in even stiffer penalties. Some kind of justice, eh?
ECB action required
Meanwhile, yesterday’s report on eurozone CPI will have given the boys at the ECB the woollies. At 0.5% it is well below the 2% target – nothing new there – but it is also not getting any better. The peripheral debtor nations need a spot of inflation to whittle away some of their respective debt mountains but with no sign of it, not even in the key battleground of Germany, proper action is now no longer merely an option.
St Mario has done what he can to verbally ease while trying to reassure the rest of the world that all is well in the garden. That line of rhetoric has become pitifully threadbare and even though there are signs of nascent recovery in the likes of Italy and Spain, it’s not enough to make a sailor a pair of trousers.
Ten-year Bunds have backed up from the interim low yield of 1.30% in mid-May to 1.40% as at last night – buy on rumour, sell on fact – and I’d like to see them a little lower after the ECB meeting tomorrow but then they surely have to be a buy again.
Trading is becoming a bit technical but don’t lose sight of the main event.