BNP Paribas fine farce requires swift resolution
BNP Paribas' US fine torment requires the swiftest possible resolution. The French bank's shares sank as much as six per cent on May 30 after the Wall Street Journal reported that authorities might demand more than $10 billion for sanctions breaches. As BNP haggles, the size of its expected penalty seems to be growing. Earlier media reports first put it at around $3 billion, and later at around $5 billion.
Leaks in advance of regulatory rulings can sometimes be beneficial. By releasing information into the market about Credit Suisse's guilty plea earlier this month, the US helped the Swiss bank. Chief Executive Brady Dougan later said it was able to establish in advance that trading could continue Stateside. Credit Suisse's experience has also given investors insight into how a guilty plea might hit BNP.
But doubts about the US authorities' other intentions for the French bank may be creating a false market in its shares. As well as a huge fine, BNP could be banned, at least temporarily, from conducting certain sorts of business. Meanwhile, the latest $10 billion number would reduce the French bank's capital ratio under Basel III rules to a relatively modest 9.5 per cent. That's within the bounds of respectability, but only just. Investors who have traded BNP shares based on media reports of different sized fines and business curbs might be incensed if the scale of the penalties turns out to be markedly different.
Worse, BNP's protracted agony raises doubts about how European authorities might react. If the U.S. comes down hard it could spark tit-for-tat retaliation. Last year European Union Commissioner Michel Barnier warned that US laws on ring-fencing capital were protectionist and said he could impose similar restrictions. Regulators from either side of the Atlantic have clashed over swaps trading. France's central bank is already known to be keeping BNP's position under close scrutiny.
BNP may be unwilling to agree to US demands. For their part, US authorities may be using their position to exert excessive pressure. Prolonging the wait adds to the misery felt by BNP investors and could ultimately backfire on Wall Street banks. Far better to settle the case soon, mend relations with Europe if necessary, and move on.