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Investing.com -- J.P. Morgan said French banks face short-term pressure from political instability but also see meaningful upside from planned share buybacks.
In a note dated Wednesday, J.P. Morgan analysts said Prime Minister François Bayrou’s decision to seek a confidence vote on September 8 could hasten the fall of the government.
With no clear majority in the lower house, the risk of early parliamentary elections has increased.
The uncertainty, the bank said, has raised the cost of equity for French lenders, contributing to recent market volatility.
French government bond spreads widened by about 7 basis points this week to 77 basis points, reflecting investor concern, though J.P. Morgan expects the impact on bank capital and earnings to remain limited.
The brokerage noted that potential fiscal measures pose a more direct risk to bank earnings. France introduced a 10 percentage point tax surcharge on corporates with revenues above €3 billion for fiscal year 2024, set to halve in 2025.
J.P. Morgan said the surcharge could remain in place through 2026, which would trim estimated 2026 earnings per share by 0.9% for Société Générale, 1.6% for BNP Paribas and 3.3% for Crédit Agricole.
Despite these risks, J.P. Morgan said recent share price weakness creates an opportunity, particularly for Société Générale.
The brokerage trades at 5.8 times price-to-earnings and 0.6 times net asset value, with a return on net asset value forecast at 11.4% in 2027.
Analysts expect €2 billion of exceptional buybacks in 2026 and €2.5 billion in 2027, implying a total yield of 11% annually over 2025–27, compared with a sector average of about 8%.
J.P. Morgan emphasized that French banks’ business models are diversified, limiting their direct exposure to volatility in French government debt.
BNP derives about 25% of revenues from France, while Société Générale and Crédit Agricole each generate about 40%.
Their sovereign bond exposures are spread across multiple countries, with France accounting for only 12% of BNP’s total, 25% for Crédit Agricole and 30% for Société Générale.