Boston, MA -- (SBWIRE) -- 05/17/2012 -- Banking Sector Stability Assured, Headwinds Remain BMI View: While French banks' exposure to peripheral eurozone sovereign debt will remain a major headwind to growth over the medium term, we note that the breakthrough in negotiations between European policymakers in stabilizing the eurozone's sovereign debt crisis has bolstered overall stability in the banking sector. This has been evident in the massive uptick in banks' share prices witnessed in trading on October 27 2011 (see chart below). Highlights of the emergency summit agreements include a voluntary 50% haircut on Greek debt by creditors and the raising of EUR106bn of fresh capital for euro area banks with guarantees for bank bonds. While details surrounding many of the proposals outlined at the emergency summit remain lacking, there is certainly potential for French banks' share prices to perform well going forward, particularly given the extent to which the major financials had sold off in the months prior leading to many trading well below book value (see our online service, October 27 2011, 'Meltdown Scenario Averted: Relief Rally Has Room To Run'). French banks will now need to focus on building their capital base over the medium term; they have been shown to need to raise only EUR8.8bn out of the total EUR106bn in order to meet tier one capital requirements set by the European Banking Authority (EBA). In particular, BNP Paribas, Societe Generale and Groupe BPCE reportedly need to raise EUR2.1bn, EUR3.3bn and EUR2.1bn respectively.

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