Analysts say Mr Macron’s Obama-like rise to popularity and subsequent celebrations could quickly turn to a hangover of Las Vegas proportions thanks to risk-on behaviour of two of the country’s top banks.
New York’s Viola Risk Advisors say opaque and risky equities and derivatives trades may be driving money to the banks but it is making them some of the most dangerous bets in Europe.
According to New York University (NYU) V-Lab, BNP Paribas is ahead of Deutsche Bank on the volatility scale with risk analysts warning that Societe General is coming in third.
And that does not bode well for Emmanuel Macron who is attempting to unify the country albeit without a party and after threatening to sue his opponents to stop them speculating about his personal finances.
Viola Risk’s David Hendler said: “The real deal is that France’s banks are the most systemic in Europe.
“French banks are threatening the French economy and certainly more than German banks threaten the German economy.
“What can Macron do? Well not much or anything if I am being honest.
“The NYU volatility lab has been measuring systemic risk and says BNP Paribas and Societe General are in the top three of Europe’s riskiest banks along with Deutsche Bank.
“It’s a great mystery because when you look at their results and their annual reports and latest earnings – they look like they are doing well and are making money but no one really understands how they are making the money.
“The take away is after the French party there is going to be the hangover, it’s going to be the economy – it is not growing well and it is not going to automatically switch on with Macron, especially with 24 per cent youth unemployment.
“The banks are doing a lot of risky equity derivatives trading and other exotic derivatives and that is largely responsible for the profits but they don’t give transparency.”
Viola Risk Advisors issued a note to investors this morning to insist they were circumspect when it comes to France and to tread carefully.
The note added: “With the Macron win for President of France, much of the financial media, sell-side research and NSRO ratings world is leaping for joy as if the allies had liberated France in WWII.
“The bottom line is that despite a new leader with high hopes for the French society and economy, it will be many years until its economy can reach the growth rates and size of the major GDP countries of the world including the USA, China, Japan and Germany.
“NYU’s indicator is based on the general assumption as to the exposure to banks to a severely adverse stock market decline of -40 per cent and the capital shortfall that would be needed to rebuild Tier 1 Capital to a 5.5 per cent level.
“France is the European country with the most amount of large banks with combined systemic shortfalls of $151 billion.
“France’s BNP Paribas has $87 billion and Société Générale has $64 billion.
“With very little in the way of disclosure from the French banks on these activities, we believe that this is a very dangerous systemic mix.
“The mix consists of opaque, non-transparent risk taking combined with a large exposure to France’s GDP and concentrated amongst the two largest banks.
“So, while the Champs Elysees is strutting it out with the Macron win, we believe that any political wins translating into economic improvement is not very visible nor likely for France.”
French banks are all struggling after the election of Mr Macron with Societe General down almost two per cent, BNP Paribas down 1.34 per cent, Natixis down 1.35 per cent.
Source : EXPRESS