By Anirban Nag and Patrick Graham
LONDON, July 1 (Reuters) - The almost-$9 billion fine
slapped on BNP Paribas this week has got foreign
exchange markets buzzing about how and when the French bank will
process the payment and whether it will lead to sharp price
So far, little direct impact has been felt, especially in
the most liquid euro/dollar exchange rate. But traders and
analysts are poring over the details of case as closely as they
analyse one-off flows related to cross-border mergers.
Steady accumulation of dollars from a European bank could
depress the euro/dollar exchange rate, at least briefly,
Just over a month ago, penalties worth $2.5 billion imposed
on Credit Suisse by U.S. authorities drove the dollar
to a three-month high against the franc, several traders
said. The payments went through the noon "fix" during London
Central to the speculation about the BNP fine and how it may
affect the exchange rate is when the amount needs to be paid,
whether the bank raises the money through U.S. dollar bonds and
if any of the amount set aside for the fine has been hedged.
Traders said with details on the fine becoming clear over
the past week, it was unlikely the bulk of the fine would be
hedged. And bankers said there was no indication so far that BNP
Paribas was sounding out investors for a dollar bond issue. Such
a bond would have minimal impact on exchange rates.
Some traders reckon that the lack of price action so far
suggests the bank, which is among the top 10 banks in the
foreign exchange business, according to Euromoney, may have
worked off quietly.
But most admit that it is not clear enough yet to say the
coast is clear and the fine payment will have little impact.
Analysts at Investec reckoned the market may trade around
the speculation, at least for a while.
"The significance of this for FX markets is that although
the bank may have pre-bought a certain amount of dollar from
their euro holdings, the assumption is that there is likely to
be more euro sold and dollar purchases now that final figure is
confirmed," Investec told clients in a note Tuesday.
The plea agreement signed by BNP provides for it to pay the
fine within 30 days.
BNP refused to comment on how the bank plans to make the
payment. It said in May it had already made provisions of 1.1
billion euros ($1.5 bln) towards the fine.
The bank is expected to sell bonds or some assets to help
pay for the fine. It has a large liquidity buffer of about 100
billion euros at the end of the first quarter - with half of
that in dollars - figures that have remained about the same at
the end of the second quarter, senior officials have said.
Some senior dealers contacted by Reuters said it was
impossible to detect any real impact in daily flows to date and
it's likely these would be well disguised by a bank with global
treasury operations anyhow.
"We have not seen any price action to indicate it, but my
inclination would be to expect that they had hedged a lot of
this already," said the head of spot G10 currency trading with
one bank in London.
"BNP are a pretty sophisticated operation in general and it
would be a real surprise if they had not been planning for this
for some time. They also run a pretty hefty U.S. dollar balance
sheet and I would think they would be making use of that."
But big one-off flows unnerve spot dealers, who constantly
need to be wary of outsize orders buffeting rates unexpectedly
Earlier this year, the repatriation of funds from Vodafone's
$130 billion sale of its stake in the wireless unit of
Verizon in the United States drove the British pound
higher against the dollar.
And, as with the Credit Suisse fine fallout, much of the
focus will be on activity around the "fix".
The "fix" is a benchmark service in the foreign exchange
market provided by banks. It is useful for buy-side investors
like large funds to value and benchmark their portfolios, since
a majority of main stock and bond index compliers use the rates
for their calculations.
"One would assume if the payments have to made - converting
euros to dollars - they would be through the fix as shareholders
demand a certain degree of transparency," said a London-based
(Additional reporting by Jemima Kelly; Editing by Larry King)