French Bank Illustrates How Credit Worries are Going Global
By William Patalon III
Managing Editor
After credit fears caused them to tumble to a record low on Friday, shares of No. 4 French Bank Natixis SA (EPA: KN) posted a record gain of more than 6.1% yesterday (Monday) – after it denied speculation that its business would get stung by the U.S. mortgage meltdown. Natixis ended yesterday with a market $24.5 billion and investment bank UBS AG upgraded the bank’s shares to “neutral” from “sell.”
The fact that investors were so quick to pull the trigger and dump Natixis shares on Friday underscores the growing worries that United States’ sub-prime mortgage problems will infect companies overseas. If that fear proves true, it could lead to a global credit crunch that will dramatically slow – or even short-circuit – the growing global boom.
If you need further evidence, consider this: Natixis shares sold off Friday after the French newspaper La Tribune reported that the bank owned 2.5 percent of Germany’s IKB Deutsche Industriebank AG, itself a subject of a rescue plan to cover possible losses stemming from the U.S. credit problems. Jean Sassus, an analyst with Raymond James in Paris, told Bloomberg News that the impact for Natixis “is very limited ; the market frenzy sent the stock very low for reasons that are not material.” Although the sub-prime problems shaved away about 2% of Natixis’ half-year net income from its investment-banking unit, the bank said in a statement yesterday that the decline was offset by income in other business categories.
“Natixis’s exposure to the U.S. sub-prime market – which represented less than 1% of consolidated pro forma net banking income in 2006 – has decreased significantly since the start of the year,” the French bank said in that company statement. The bank has also asked the country’s market regulator – Autorite des Marches Financiers – to delve into the big share-price drop from Friday because of “unusual trading volumes.”
Germany’s IKB ousted its CEO in late July and then revealed that it would miss its profit target for the year. German banks bailed out IKB – to the tune of about $11 billion – because it lost a bundle in the US sub-prime mortgage market, where it had a total exposure of $17 billion.
Natixis said its relationship with IKB is focused primarily on financing mid-sized German corporations, a role that IKB had traditionally filled pretty well. But the French bank said the current problems facing IKB would result in “no impact, or only a very limited impact, on Natixis’s income statement.”
Natixis was created in November from the merger of some units of Groupe Caisse d’Epargne and Groupe Banques Populaires, Bloomberg reported. Those two major shareholders – which each own just over 34% of Natixis – said yesterday that they now intend to raise their stake in the French bank, emphasizing that they have “full confidence” in the venture.
