French banks face a nervous wait ahead of the final round of the country's presidential election in two weeks when far-right euroskeptic Marine Le Pen will challenge incumbent Emmanuel Macron.
Le Pen, leader of National Rally, came second in the first round of the election, on April 10, with 23.2% of the vote, behind President Macron in first place with 27.8%. Support for Le Pen surged in the week ahead of the first round, with one poll suggesting Le Pen could beat Macron in a runoff.
The emerging prospect of a Le Pen presidency is spooking investors in French banks, with the share prices of the country's three largest listed lenders — BNP Paribas SA, Crédit Agricole SA and Société Générale SA — falling by an average of more than 9% since April 1, compared to a dip of less than 2% for the S&P Europe BMI Banks Index, Market Intelligence data shows. Le Pen's lack of enthusiasm for the European Union and the euro are seen as a potential threat to the growth prospects of the French economy and the stability of its financial system.
"A Le Pen presidency would bring a degree of uncertainty and uneasiness related to France, which could affect French banks' European activities," Sam Theodore, senior consultant at credit rating agency Scope Group, said in an emailed statement.
'Europe of nations'
Le Pen wants France to have greater autonomy from the EU, which she says should be replaced eventually by a "Europe of nations." Her policies include a cut in France's contributions to the EU's budget, the primacy of French law over EU rules, and a return of custom checks on goods entering France from other EU countries, which would undermine the bloc's single market. The power of both candidates to implement their policies will depend on the results of French National Assembly elections in June.
"She is really going to be working against Europe and at best that means gridlock, at worst it means a move away from more integration," said Jessica Hinds, senior Europe economist at independent research consultancy Capital Economics. "Overall, her approach would probably reduce France's potential GDP growth in the long run, so it wouldn't be a good thing for the French economy."
France accounted for around half of Crédit Agricole SA and SocGen's revenues in 2021 and around one third of BNP Paribas', according to Market Intelligence data and company filings. France's three largest listed banks are among the biggest and most widely dispersed lenders in Europe. They have benefited from France's influential position in the EU and would be reluctant to see any rolling back of its economic and financial integration, said Theodore.
"President Macron has managed to strengthen France's international reputation and favorability and solidify its leadership role in Europe," Theodore said. "Such an increase in France's soft power serves well French banks' European and international presence [as] France has probably one of the most geographically diversified banking landscapes worldwide."
BNP Paribas and Crédit Agricole SA declined to comment for this article. SocGen did not reply to a request for comment.
Anti-EU sentiment
Le Pen's surge in popularity comes as the EU encounters similar opposition in other member states. Hungary reelected euroskeptic Viktor Orban on April 3 while the Polish government is engaged in an ongoing row with the EU about adherence to European law. The U.K. voted in a referendum to leave the EU in 2016.
Le Pen's opposition to the EU appears to have mellowed since her previous campaigns for the presidency in 2011 and 2017. She had previously supported France leaving both the EU and the euro.
Her current campaign plays down her opposition to the EU, as well as her party's longstanding focus on immigration issues. She has instead prioritized policies that provide support for voters, such as scrapping income tax for the under-30s, amid a cost of living crisis caused by surging inflation.
Short-term boost
The size of the fiscal stimulus on offer from Le Pen could boost French GDP growth and bank lending in some areas in the short term, said Hinds. "If there's going to be the massive support toward household income that she is planning, then you could actually see quite a boost to consumer spending," Hinds said.
Still, other areas are likely to suffer if Le Pen is elected.
"We might see private investment struggle," said Hinds. "The uncertainty and concerns about what the future holds might dampen business and private sector investment a little."
Since Macron came to power in 2017, foreign direct investment in France has grown to levels similar to those seen in the U.K. and Germany, according to a report by consultancy EY. France attracted 985 foreign direct investment projects in 2020, while the U.K. got 975 and Germany 930.
Banking on Macron
Former Rothschild & Cie banker Macron has overseen a "very pro-business" presidency since 2017, said Hinds, which has involved significant labor reforms and reductions in corporation tax and other employer contributions.
"The French financial system will be better served by a second Macron mandate than by a Le Pen presidency," Theodore said. Macron's reforms enabled France to absorb the impact of the COVID-19 pandemic, as well as producing a decline in structural unemployment and a relative improvement in business confidence prior to Russia's invasion of Ukraine, said Theodore.
BNP Paribas, SocGen and Crédit Agricole SA enjoyed their best-ever year for profits in 2021, Market Intelligence data shows. The global economic recovery from the COVID-19 pandemic drove the strong performance, helping the lenders to revenues that were among the highest they have ever recorded.
A second term for Macron would provide the "ideal environment" for French banks, said Arnaud Journois, vice president, financial institutions at credit rating agency DBRS Morningstar. In the event of a Le Pen victory, the negative impacts on French banks will begin to be felt immediately, Journois added.
"If she is elected, we will probably see a bit of turmoil in the market, higher volatility," said Journois. "That might have an impact on the results from banks' financial operations."