RBC Capital Markets is sticking with a constructive view on French banks, projecting upside of 20% or more for all three lenders it covers even as political uncertainty at home clouds the outlook. The broker's preference is BNP Paribas, which it favors for a more diversified business mix and a strategy update scheduled for Feb. 2.
In a note to clients, RBC raised its price target on BNP to €114 from €105 and maintained an outperform rating. The move contrasts with its treatment of Societe Generale, where the target was cut to €82 from €88 while the sector perform rating was left in place. The reduction followed an increase in the cost of equity RBC applies to the bank, now 12.3% from 11.5%, and a shift in valuation basis to 2028 estimates instead of 2029. For Credit Agricole, the target was held at €19.
Political risk and the bond spread
The broker pointed to the gap between French and German 10-year bond yields, which has widened to about 150 basis points, a level it described as comparable with the European debt crisis. That widening has fed directly into the cost of equity implied by share prices, rising by 60 basis points at SocGen, 90 basis points at Credit Agricole, and 10 basis points at BNP so far this quarter.
RBC expects share price swings to remain large around the presidential election, with a first round on April 18 and a runoff on May 2, and until the new president settles in. The broker also highlighted the differing domestic exposure of the three lenders: France accounted for 44.1% of SocGen's 2025 revenue and 45.6% of Credit Agricole's, against 25.9% at BNP, according to RBC data. SocGen's shares are the most sensitive to French developments, RBC said, though BNP's lower exposure has earned little credit in its share price.
Operations show limited strain
So far the effect on operations is small. French household loans grew 0.65% in the year to September, against 3.07% in the euro area, according to ECB data. Business confidence is at Covid levels. RBC saw no sign yet of weaker loan quality despite more bankruptcies.
Car leasing was the biggest third-quarter drag. BNP's Arval unit missed revenue estimates by 24%. Used-car prices in Europe are about 22% below their 2022 peak, and RBC expects the drag to last through 2027-28. Credit Agricole's consumer finance and mobility arm posted pretax profit of €2 million versus €64 million expected, driven by a €55 million negative contribution from Leasys, its joint venture with Stellantis.
On Nov. 9, Credit Agricole proposed merging its Italian operations with Banco BPM, which would lift its stake from 29.6% to about 45%. It has not given financial details.
BNP has indicated it will raise capital returns at the update, with a 50% dividend payout and possible buybacks of 20% of profits.