The French Connection: Can It Drag Down the U.S. Financial Sector?
Citigroup and Goldman have increased their exposure to French banks over the past months. In doing so, the banks have effectively painted themselves into a corner. Too bad.
Europe's financials have seen much better days. Banking stocks have been especially vulnerable, and France's market is no exception.
Last week we reported on a rumor that Societe Generale (SCGLF), France's third largest bank, which has significant exposure to Greece's public and private debts, was under review for a downgrade. Not to mention the bank seems increasingly unlikely to maintain funding amid the debt-crisis. The stock has plummeted 22.72% since its August 2 close, although gained 0.56% today in the wake of a recent short selling ban.
According to Bloomberg, Citigroup "boosted gross "cross-border outstandings" with French banks 40 percent to $15.7 billion from Jan. 1 through June 30, according to the company's quarterly report. Goldman Sachs increased claims by 31 percent to $38.5 billion in the first half, its report shows."
The truth of the matter is that financial institutions have worldwide interconnectivity. A debt crisis in one country is bound to effect all others to some extent. Although Europe once seemed like a safe bet, times have changed, and American and European banks have found themselves to be especially vulnerable to international economic volatilities.
In grasping the extensiveness of such connections, take Citigroup, a major American bank that said, "on Aug. 5 that it had a $31.7 billion gross exposure to Greece, Italy, Portugal, Spain and Ireland, which are at the heart of the European debt crisis." (via Bloomberg)
Given the connectivity, we have to question whether or not a failure at a French bank can lead to a chain reaction large enough to drag down the U.S. financial sector.
To help you analyze the possibilities we provide data below on the major U.S. financial stocks with significant and documented exposure to the French markets. Quotes via Bloomberg.
Use this list as a starting point for your own analysis. (Click here to access free, interactive tools to analyze these ideas.)
1. Citigroup (NYS: C) : Money Center Banks Industry. Market cap of $87.18B. Current price at $31.27. This is a risky stock that is significantly more volatile than the overall market (beta = 2.52). The stock is currently stuck in a downtrend, trading -12.99% below its SMA20, -17.94% below its SMA50, and -28.17% below its SMA200. It's been a rough couple of days for the stock, losing 10.74% over the last week.
"Citigroup has a total of $44 billion in cross-border outstandings in France, when including dealings beyond those with banks. It also had $64.9 billion in so-called commitments to clients in France, which include legally binding letters of credit, according to its quarterly report"
2. JPMorgan Chase (NYS: JPM) : Money Center Banks Industry. Market cap of $140.01B. Current price at $36.88. The stock is currently stuck in a downtrend, trading -5.88% below its SMA20, -7.6% below its SMA50, and -12.79% below its SMA200. The stock has performed poorly over the last month, losing 11%.
"JPMorgan Chase & Co., the second-biggest U.S. bank, had $16.5 billion in claims on French banks at the end of 2010, excluding hedges and collateral."
3. Morgan Stanley (NYS: MS) : Investment Brokerage Industry. Market cap of $32.63B. Current price at $17.92. The stock is currently stuck in a downtrend, trading -13.92% below its SMA20, -17.64% below its SMA50, and -30.06% below its SMA200. It's been a rough couple of days for the stock, losing 15.63% over the last week.
"Morgan Stanley, the owner of the world's largest retail brokerage, last disclosed its outstandings to French banks in an annual report, putting the figure at $39 billion as of Dec. 31."
4. Bank of America (NYS: BAC) : Regional Banks Industry. Market cap of $72.99B. Current price at $7.76. This is a risky stock that is significantly more volatile than the overall market (beta = 2.23). The stock is currently stuck in a downtrend, trading -13.71% below its SMA20, -22.5% below its SMA50, and -36.84% below its SMA200. It's been a rough couple of days for the stock, losing 12% over the last week.
"Bank of America, the biggest U.S. bank, had $8.1 billion in French-bank exposure, including loans and deposits, at the end of 2010. The lender had total French exposure of $20.1 billion at the end of June. The figures don't include hedges or collateral, Jerome Dubrowski, a spokesman for the Charlotte, North Carolina-based bank, said in an email."
5. Goldman Sachs (NYS: GS) : Diversified Investments Industry. Market cap of $58.91B. Current price at $119.13. The stock is currently stuck in a downtrend, trading -7.5% below its SMA20, -9.51% below its SMA50, and -21.9% below its SMA200. It's been a rough couple of days for the stock, losing 6.96% over the last week.
"Goldman Sachs, the fifth-biggest U.S. bank by assets, had total outstandings [in France, when including dealings beyond those with banks] of $47.3 billion and didn't disclose its commitments."
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Becca Lipman does not own any of the shares mentioned above. Data sourced from Finviz.
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