Le Pen Win Would Wipe Out 25% From French Bank Shares, Citi Says

(Bloomberg) -- A victory for Marine Le Pen in France’s presidential elections would cripple the country’s banking stocks, says Citigroup Inc.

French lenders would lose about a quarter of their market value on average should the anti-euro candidate win in May, Citigroup analysts forecast. While they see a low likelihood of that given recent voting polls, lessons from unexpected outcomes in the U.K. and U.S. last year has Citigroup asking “what if?”

“Polls have been wrong in the past,” Citigroup analysts including Azzurra Guelfi and Simon Nellis wrote in a note. “Exposure to France and French sovereign debt, as well as CIB business, are key stressed assumptions. We think the downside could be significant.”

Le Pen, the candidate of the far-right National Front, wants to leave the euro, revoke central bank independence and print a new currency. Risks to banks from her victory include a drop in French government bonds, which not only comprise a significant chunk of the lenders’ balance sheets but would also drive up funding costs, according to Citigroup. Also of concern would be lower revenues from capital markets and slower growth in asset management.

Societe Generale SA shares could tumble 38 percent from Tuesday’s closing price if Le Pen is elected president, due to its higher proportion of French revenues, greater exposure to sovereign bonds and larger investment-banking activities, Citigroup said.

BNP Paribas SA would hold up best, with a drop of 23 percent. The analysts predict declines of 30 percent and 34 percent for Credit Agricole SA and Natixis SA, respectively.

Even though Le Pen’s policy plans threaten to shake up the country’s banking system, financial institutions including Credit Agricole, Societe Generale and Axa SA have avoided contact with her team. Polls show the 48-year-old leading in the first round of voting in April, but losing the May 7 runoff against more business-friendly leaders such as Francois Fillon and Emmanuel Macron.

To contact the reporter on this story: Sofia Horta e Costa in London at shortaecosta@bloomberg.net.

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Namitha Jagadeesh, Angela Cullen