Today’s Crunch Catalyst: Asian Banks Commence Cutting Credit Lines To French Banks, Sparking Self-Fulfilling Prophecies
by Tyler Durden
Remember how we joked (but were dead serious) that the IMF is now simply a figurehead organization, and the real global bailout cop is China? Well, that may not be the case for much long. Reuters has just broken news that at least one bank in Asia, and five other in process, has cut credit lines to major French lenders “as worries about the exposure of French banks to peripheral euro zone debt mounts, banking sources told Reuters on Thursday.” Why is this worrying? Because as is by now well-known, the PBoC has been as aggressive a buyer in the primary market of European market as most European banks, which as is well-known immediately turn and pledge said debt as collateral to the ECB for 100 cents on the euro, and the fact that its proxies are now quietly withdrawing from the European market as lenders of last resort, is probably far worse news than a rumor that the S&P may cut France.
That sudden rise in risk perception, combined with sharp share price falls in French banks, prompted some banks in Asia to speed up reviews of counterparty risk and look at whether they should cut exposure to European lenders, sources at each of the six banks in Asia said. Contacted about the moves by the banks in Asia, a spokeswoman for top French lender BNP Paribas
in Paris said: “We never comment on market rumours.”
had no immediate comment to make while a spokeswoman for Credit Agricole , which will publish its second-quarter earnings later in August, said the bank would not make any comment.
The banks in Asia and the sources — a mix of risk officers, senior traders and loan bankers — could not be identified because of the sensitive nature of the information.
The head of treasury risk management for Asia at one bank in Singapore said their credit lines to large French banks had been cut because of the perceived risks in lending to these counterparties.
“We’ve cut. The limits have been removed from the system. They have to seek approval on a case-by-case basis,” the treasury risk official said. The bank official declined to name the French banks.
A senior credit trader in Singapore said that when a bank’s shares fall that sharply their risk officer will automatically look at how much
exposure they have to that lender.