French Banks In Trouble

[May 21, 2008.]

 

In terms of customers and capital, Credit Agricole is the biggest bank in France. However, as a result of the recent credit crisis and global economic downturn, Credit Agricole's investment banking operation, Calyon, has suffered devastating, unexpected losses. As a consequence, Credit Agricole is faced with the terrible choice of requesting money from its investors. The banking giant is considering the possibility of demanding up to 5.9 billion euros from its investors. That translates to $9.1 billion.

This fiscal quarter, Credit Agricole anticipates profits of only 892 million euros. This is a low figure would represent a 66% decrease in profits from the same fiscal quarter of last year. Its Calyon investment banking unit has already lost 1.2 billion euros as a result of the faltering global economy.

The banks' financial troubles, and its potential demands for money, have not been met with enthusiasm from potential investors. The value of Credit Agricole stock plummeted earlier today; prices per share decreased by over 6%.

A typical stock trader commented on the situation. The Paris finance professional asserted, “the fact that they need another six billion euros of capital is worrying, and I'm staying cautious.”This trader does not plan to buy or sell very much Credit Agricole stock.

The second-biggest bank in France is not faring any better. One of the most important banks in France, Societe Generale, lost 23% of its profits during 2008 alone, during the year's first fiscal quarter. The decrease in Societe Generale's profits is mostly due to the financial troubles of its global investment management operation.

Of course, Society Generale has also suffered because of the illegal actions of one of its employees in January of 2008. The bank claims that the illegal trading activities of one of its junior traders, Jerome Kerviel, cost the bank most of its 4.9 billion euro losses.