French debt binge turns spotlight on buy-outs
Cap on French banks’ corporate exposures could be transferred across Europe; household leverage outpacing corporate.
Rampant bank and capital markets borrowing in France is alerting financial policymakers to the danger of French corporations taking on ever more debt to make acquisitions.
French M&A volumes reached their highest level since the 2008 financial crisis in 2017, with outbound volumes accounting for around two thirds of deals, according to Dealogic.
Out of about 20 key global markets, France was second only to Hong Kong in terms of the increase in private non-financial debt over the last two years, according to a January report from the Institute of International Finance.
France’s financial stability board, the HCSF, acknowledged this could be a problem in December when it proposed to cap systemic French banks’ exposures to the most indebted big resident firms, initially at 5% of their capital base. The French authorities are now in a consultation period until the spring to hammer out the details with the ECB, European Commission and European Banking Authority.
The rule could then be transferred across Europe, at least on a voluntary basis.
“Banks cannot have too high a concentration of their risk in these overly indebted corporations,” Banque de France governor François Villeroy de Galhau told French television channel BFM Business late last year.