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Beware French banks if If Bill Gross is right about interest rates (CRARY, SCGLY, BNPQY)

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In a recent interview, PIMCO head Bill Gross stated that he expected a low interest rate environment to be maintained by the Federal Reserve, the European Central Bank and the Bank of England for "three, four or five years." If this is true, this is no time to own French banks as low interest rates for the next half-decade mean that the financial sector is still in woeful condition and will not be recovering any time soon.

As detailed in a previous article on emergingmoney.com , rating agency Moody's has already downgraded Societe Generale SA ( SCGLY , quote ), Credit Agricole SA ( CRARY , quote ) and BNP Paribas SA ( BNPQY , quote ).

Gross' predictions are tantamount to another downgrade. Plain and simple: after 17 euro zone debt crisis summits, these banks are still nowhere near recovery. This is not the time to buy these stocks in hopes of a rebound at any time soon.

This is evident in the stock price for each. Credit Agricole (CRARY) is now around $2.64, down from a year high of $8.82. Societe Generala SA (SCGLY) is down to $4.31 from a top of $14.27 for the past 52 weeks. At $19.20, BNP Paribas SA (BNPQY) is at less than half its high for 2011 of $41.03.

At his press conference in April, Federal Reserve Chairman Ben Bernanke stated interest rates would be kept low until at least 2013.

As the financial sector has been the worst performing group in the stock market for 2011, this has obviously not generated any recovery for banks around the world. The bank exchange-traded fund, SPDR KBW Bank ( KBW , quote ) is off a third for the year.

If Bill Gross is right that interest rates will be low for another half decade, one can expect the same for the share price of French bank stocks -- and their counterparts around the world.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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