France's top banker is defending the country's banks, after a two-day selloff that has seen shares in French banks plunge on what he calls "unfounded rumours."
France's central bank governor Christian Noyer says in a statement that the country's banks' first-half earnings "confirmed their solidity in a difficult economic environment" and that the banks have healthy capital cushions.
The statement Thursday came after investors dumped shares of the leading French banks Societe Generale and BNP Paribas amid investor fears over the banks' health. The panic comes amid concerns about the health of leading world economies, including France.
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French bank stocks remained under pressure Thursday as volatile and nervous traders ignored officials' repeated attempts to assuage fears over their financial health.
A rebound from Wednesday's battering, when rumours about Societe Generale's financial health, gripped markets, proved short-lived and France's bank stocks were back under renewed selling pressure, in another sign that investors remain worried over their exposure to the debt of countries like Greece and Italy, and Europe's ability to deal with its debt crisis.
Analysts were left grasping to identify a single trigger for the sudden reversal.
"There's nothing behind it, it's a market of malintentioned speculators trading on pure rumours," said Marc Touati, an economist at French trading firm Assya Compagnie Financiere.
By early afternoon Paris time, BNP Paribas was down 2 per cent while Societe Generale fell 5 per cent, as assurances by government and rating agencies did little to assuage investor fears over banks' health.
France has become the latest to be caught in the debt crisis crossfire afflicting Europe, and its government is taking pains to assure markets that it won't be the next to see its credit rating downgraded. French President Nicolas Sarkozy cut short his holiday Wednesday and ordered his ministers to come up with new budget cuts to ensure that France sticks to deficit-cutting targets.
However, his return did little to soothe investor worries about the country's rating even though all three leading credit rating agencies reaffirmed their current triple-A assessment of France.
"The market is in a phase of extreme volatility today so any news, even if it is not confirmed, is believed to be true," said Dominique Dequidt, fund manager at KBL Richelieu investment firm in Paris.
Societe Generale, France's second biggest bank, bore the brunt of Wednesday's market scepticism as its share price became a massive victim of rumours surrounding its financial health.