Why you shouldn’t trust the WSJ piece on BNP Paribas

The Wall Street Journal Europe has published this morning a market-moving opinion piece claiming to reveal serious funding troubles at French bank BNP Paribas. The article opens with an alleged quote from a BNP executive:

We can no longer borrow dollars. U.S. money-market funds are not lending to us anymore. Since we don’t have access to dollars anymore, we’re creating a market in euros. This is a first. . . . we hope it will work, otherwise the downward spiral will be hell. We will no longer be trusted at all and no one will lend to us anymore.

On the face of it, the quote didn’t seem that outlandish: the major French banks have a significant amount of the bad kind of European sovereign debt in their books, have not written off the potential losses quite as extensively as others have done and thus stand to suffer dearly in case of a Greek default. You could also argue that French banks haven’t always been 100% straightforward in their defense. And it’s not like hints of a dollar funding problem at a European bank haven’t surfaced in the past weeks.

Still, there are many reasons to be extremely skeptical of the article.

The first one is a matter of principle: when it comes to the WSJ opinion pages, the rule should always be “trust, but verify”. It is even truer when the piece is about France.

The second rests with the author of the piece. I can see why WSJ editors would be fond of Nicolas Lecaussin, who works for a smallish French free-market think tank (sort of like the American Enterprise Institute minus the money, the brainpower and the political capital) and is a reliable, if unsophisticated, supporter of the kind of principles (tax cuts good, public spending bad, anthropomorphic global warming hoax) the WSJ holds dear. But I have a hard time seeing why this guy, whose blog isn’t especially indicative of a deep interest in finance, would be especially well informed about the true liquidity position of BNP Paribas.

The third reason is that the column, once you get past the juicy quote, is really a confused, simplistic and error-ridden rant against the French banking and administrative elites.

The main thesis of the piece is that the relationship between French bankers and French public officials has been way too cozy, and that the resulting “what’s good for BNP Paribas (or Société Générale, or Crédit Agricole) is good for France” mentality has cost the French taxpayers dearly. Well, I happen to agree. Left unsaid, though, is how this differs from the situation in, say, Britain or Ireland or the US. Certainly, the idea that “the revolving door between the government and the banks is a particularly French one” is enough to make even a casual observer of American politics giggle. And Simon Johnson weep.

In an attempt to buttress his case with facts, Mr Lecaussin highlights a

study by the Management Institute at the Université de La Rochelle [that] finds that between 1995 and 2004, banks that were administered by government-linked technocrats were in greater total debt than those that were not.

A quick research shows this summary to be embarrassingly wrong. The study is here (pdf, in French). What it really found is that, in 1995 and in 2004, French non-financial companies headed by former students of the Ecole nationale d’administration (a French training school for senior civil servants) tended to get cheaper loans, and to go more into debt as a result, than companies whose CEOs were not ENA alumni – presumably due to the fact that many French banking executives are also ENA alumni. In itself, this is a fascinating result. But one that has nothing to do with whether banks headed by technocrats tend to pile up more debt.

BNP Paribas has announced tonight, in a statement published as usual in both French and English (why Mr Lecaussin would deem an English press release from BNP Paribas “highly unusual” is beyond me) that it is asking

the French market regulator, Autorité des Marchés Financiers, to open an investigation into the publication of erroneous information about its funding in dollars in an article in the Opinions section of the Wall Street Journal.

I really wish for the WSJ that its editors have double-checked the accuracy of the quote that has made the column such a hit this morning. But, somehow, I find it hard to be completely sure.

13 thoughts on “Why you shouldn’t trust the WSJ piece on BNP Paribas

  1. I quote from the article: “The main thesis of the piece is that the relationship between French bankers and French public officials has been way to cozy”. The correct spelling is “too cozy”, perhaps a minor matter but it does detract from the article.

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  4. Nice post.

    About BNP’s statement, the surprising thing is that BNP published the english statement first, and few hours later, the french language version.

    I don’t think no one is arguing that BNP shouldn’t communicate in english even though this is a commonplace that French folks love their language 🙂

  5. Hi Emmanuel,

    The WSJ was often criticized in the US during the 2007-2009 collapse of Bear Sterns, Lehman, Merrill, and AIG.

    The problem was, however, they were early and right.

  6. Stan: thanks. Not sure releasing a statement only in English at first is that strange. The WSJ column is in English, after all.

    gman: yeah, yeah, I was bending over backwards to be fair and balanced here. Maybe overly so.

    Marz Bonfire: which WSJ section are you talking about? News or opinion? If the latter, what were they right about, exactly?

  7. I think the main shareholders of BNP are Belgium and French state at 10 an 20% of the capital.
    How can any bank out there be more secure?

  8. And today’s news of coordinated provision of liquidity? Is that more reason to be sceptical of the story, or less?

    Come to think of it, a lack of liquidity is a *fact*. It is either true, or not true. I don’t see much in this column that has much connection with whether it’s true or not true. It just seems like a tedious litany of irrelevancies.

  9. It’s probably worth reading the International Financing Review piece into the record, too. Shorter IFRE: US banks won’t lend to French banks, so the French banks are cunningly borrowing from US banks.

    Regarding the La Rochelle study, although I haven’t read it, it occurs to me that a substantial slug of total French corporate indebtedness in 1995-1996 might be accounted for by one transaction – France Telecom’s “voluntary” contribution to getting French Euro membership signed off.

    A deal big enough to push the debt/GDP ratio under the Maastricht target has to be, eh, pretty big because GDP is a big number. FTel is a great big defensive utility that’s also partly nationalised, so it could expect to enjoy very good credit terms by definition. I’m not aware that they sold assets or issued shares to pay it, so they must have either borrowed or run down cash reserves – i.e. increased net debt.

    And FTel also has a hell of a lot of enarques, polytechniciens, Supelec/Suptelecom types etc. But it wasn’t because the banks were being nice to FTel but rather because the Finance Ministry was being nasty.

    More generally, ENA graduates in the private and semi-private sector go into big companies. Big companies are considered good risks and pay lower interest rates. Companies that can borrow cheaply borrow more than ones that pay through the nose.

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