AXA short-selling ban extended as euro crisis continues

The French government extended its short-selling ban today on 10 key institutions, including AXA, amid fears the euro crisis could extend to France.

The ban was first imposed on August 12 and extended in late September until Friday in a bid to reduce downward swings of the prices of these shares.

Short-selling is a controversial technique where investors profit if the stock falls. Market enthusiasts argue it increases liquidity and prices risk more effectively as opposed to the French government, which blames the trading technique for spreading panic in times of crisis.

The short-selling ban comes as fears are rising that the eurozone crisis could spread to France, following news that French government 10-year interest on debt increased to 3.3%, a new euro-era high compared to safe-haven German debt.

French costs are escalating amid fears that Italy will need a bailout following news that its debt interest levels had been pushed to an unsustainable level beyond 7%.

The French government, already struggling to maintain its triple AAA credit rating, is deeply concerned as its banks are heavily exposed to Italian debt.

A default by Italy would trigger a chain reaction through to French banks and would imperil the French government’s debt sustainability.

AXA would suffer a backlash as it is loaded up with French government debt as it is the largest insurer in the country.

It’s share price has dropped around 40% since the beginning of the year as investors fret about the deepening crisis in the eurozone.

Yesterday Prudential chief executive Tidjane Thiam boasted that his company had no shareholder exposure to France, claiming he saw the eurozone crisis brewing as far back as 2009.

Italian bond yields were falling back today amid suspicions that the European Central Bank is once again aggressively buying up the government’s debt.

The European Central Bank, despite German fears of inflation, is now facing worldwide pressure to carry out massive purchases of Italian government debt to cap debt levels to aid beleaguered politicians in Rome.

Moves by the European Central Bank to purchase Italian bonds would be greeted well by Aviva, which has a 7.5billion euro exposure to Italian debt.

Panmure Gordon analyst Barrie Gordon estimates Aviva could take a 20% haircut - or loss - on Italian government debt before it would have to consider capital raising.

In a worst case scenario, Aviva could consider imposing losses on shareholders and life policyholders.

Shore Capital analyst Eammon Flanagan said: “I think Aviva is well protected - the sale of RAC and Delta IPO have boosted their firewalls considerably. However, in the event of a full default, then it does have a potential issue.”