BNP Paribas will announce Q2 financial results this week. While earnings are expected to be lower year-over-year, they will probably be better than those of its rivals, Societe Generale SA and Credit Agricole SA, according to Bloomberg. BNP Paribas fell 1.76 euros to 59.77 euros in Monday afternoon trading in Paris.
About a year ago, on August 9, 2007, BNP Paribas halted withdrawals from three funds that invested in subprime mortgage debt. The bank's announcement proved to be the first of dozens credit-loss and write-down announcements by banks, mortgage lenders and other institutional investors, as subprime assets went bad, due to defaults by subprime mortgage payers.
The losses and resulting credit crunch compelled the intervention by the world's major central banks. The U.S. Federal Reserve, European Central Bank, Bank of England, Swiss National Bank and Bank of Canada made hundreds of billions of dollars available in specialized loans through conventional monetary policy tools and via new, special 'facilities,' in an effort to maintain credit market liquidity and prevent bad bank/mortgage lender business models from undermining healthy sectors and the broader economies in the United States and the European Union.
Economic growth is the major concern today
London-based economist Mark Chandler told BloggingStocks Monday that concern about credit markets freezing up again has diminished, but concern about the impact of the housing sector's slowdown on broader economies has not.
"By and large we can judge the Fed's, the ECB's and the Bank of England's intervention as a success, from a liquidity standpoint, and BNP Paribas' continued function is proof of that," Chandler said. "The Fed and the ECB used existing tools, and when needed devised new tools, such as the Term Auction Facility, to keep markets functioning. The pervasive fear that gripped the markets last year is gone. Still, there's no denying the economic impact of the housing recession. It will take about 0.5-0.7% off the EU's GDP and about 1.0-1.2% off the U.K.'s GDP in 2008."
Further, Chandler said data he's reviewed suggests the U.S. will need "at least two of three more quarters" to work-off excess housing inventories. Moreover, given the lack of stimulus from the housing sector, that would place the start of U.S. recovery "at end of Q1 2009 at the earliest," he said, which will also delay a recovery in the United Kingdom.
Economic Analysis: A modest bit of good news from BNP Paribas. The data point confirms that markets remain liquid and functioning, and that the worst of the write-downs in the financial services sector is behind us -- famous last words. That said, the drag effect of the housing sector's recession will continue for at least another 2-3 quarters, as economist Chandler outlined, and perhaps longer. Combined with high energy prices, that may compel a second U.S. fiscal stimulus bill, or some other mechanism to jump-start demand, if business investment does pick up in the immediate quarters ahead.
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