Shares of BNP Paribas, Crédit Agricole, and Société Générale dropped 8%–10% on Aug. 26 due to renewed political instability in France. French 10-year bond spreads over German bunds surged by 14 basis points to 82 basis points, nearing November 2024 highs. Wider spreads could impact net interest margins and French banks’ bond holdings.

French banks may face higher long-term funding costs if bond spreads remain wide. However, short-term funding prices are currently based on eurozone money market rates with limited sovereign credit risk. Wholesale funding is more crucial for French banks than for other European peers, providing a buffer against market volatility.

Despite the market reaction, French banks like BNP are well-diversified globally, with only 26% of revenue coming from France in 2024. Société Générale and Crédit Agricole have higher exposure at 41% and 47%, respectively, still less concentrated on their home market than other European banks. BNP is undervalued, Société Générale is fairly valued, and Crédit Agricole is overvalued.

Italian banks have thrived amidst political turmoil and wider sovereign spreads, with the spread of Italian government bonds over bunds reaching 250 basis points in 2022. Despite concerns following the election of a populist coalition, Italian banks have performed well, benefiting from higher interest rates.

Read more at Morningstar: French Bank Stocks Rattled by Political Turmoil; Market Reaction Looks Overdone