In a perfect example of how quickly confidence can evaporate, France’s banks have been under pressure from growing concerns about how much money they have lent to debt laden euro zone countries and whether they will get that money back.
Their shares fell despite reassurances from the French central bank chief that they are solid.
Societe Generale suffered worst and Oliver Roth of Close Brothers Seydler in Frankfurt explained: “The background to the plunge of Societe Generale were simply rumours about Societe Generale and their liquidity problem. That was simply a rumour, but that was enough to plunge the stock exchanges all over the world.”
BNP Paribas and Credit Agricole also saw their shares tumble.
Reuters reported that because of the sudden rise in risk perception one bank in Asia has cut credit lines to major French lenders while five other Asian banks are reviewing trades and their risk.
One worry is about an expanded bailout for Greece and how that would hurt French banks.
According to the Bank for International Settlements French lenders have most direct exposure to Italy, followed by Spain, then Greece, Ireland and Portugal.
They also have indirect exposure through owning banks in those countries.
Around Europe the banking sector has lost about a third of its value so far this year.
Investors are selling bank shares to the same degree that they did during the 2008 financial crisis because of the euro zone’s debt crisis and the deteriorating outlook for global growth.