With Eric Holder suddenly playing hardball with the banks (most notably not US banks), it has not gone unnoticed among the largest European newspapers. The potential $10 billion penalty for BNP Paribas - France's largest bank - for alleged dealings with a sanctioned Iran has been called a "masterful slap," by Le Monde and Le Figaro said the U.S. was making an example of BNP to deflect criticism it had been "lenient with the American banks responsible for the financial crisis." This could make for an awkward week for Obama, not only facing Putin as he visits Europe to celebrate D-Day but as the allies themselves turn on him with France's Hollande likely to raise the matter and, as Bloomberg reports, newly elected National Front party called on the French government to "defend the national interest" in the case.

As Bloomberg reports, following Eric Holder's plan to fine BNP Paribas $10 billion over dealings with sanctioned nations,The French are crying foul...

Le Monde in its May 31 edition called the possible fine a “masterful slap.” Le Figaro newspaper said the U.S. was making an example of BNP to deflect criticism it had been “lenient with the American banks responsible for the financial crisis.” Hollande may raise the matter with Obama this week, Les Echos reported today, without citing anyone.

This would be the largest criminal penalty in US history - which some are claiming is unfair...

“If this results in a guilty plea, it is likely to increase debate in France and the rest of Europe about the essential fairness of U.S. criminal procedures,” said Frederick T. Davis, a lawyer at Debevoise & Plimpton LLP in Paris and a former U.S. prosecutor.

Europe is not happy...

“This affair is part of Washington’s hegemonic ambition in law and commerce,” said Jacques Myard, a lawmaker from Former President Nicolas Sarkozy’s UMP Party. “Washington has the annoying habit of trying to apply its laws outside its jurisdiction and use its strength for commercial ends.” ... “Megaphone diplomacy is not what’s called for here,” Le Guen said on BFM television. “The United States can’t treat its allies like this.” ... In a statement on its website, the National Front accused the U.S. of “racketeering,” in an effort to weaken BNP and aid its American rivals. “We demand that the French government not stay idle,” the statement said.

It seems this week might be a busy one for Obama as he visits Europe...

“It would be unacceptable for the French government to do nothing at a time when the European Union is negotiating a free-trade accord with the U.S.,” he said.

And as if that was not bad enough, just this week, Goldman Sachs has downgraded the French bank from "conviction buy" because a potentially meaningful financial penalty in the US curtails the outlook for capital return.

On excess capital optionality, the Wall Street Journal reported (May 29) that the US Department of Justice is seeking more than US$10 bn for the alleged violations of US economic sanctions for US$ transactions with certain countries. If this were the case then the hit to CET1 from additional provisions would reach c.110 bp of RWAs and lower the CET1 ratio to 9.5% pro forma on 1Q14. The company has provisioned US$1.1 for a potential penalty; however the final impact could be significantly larger than this. For purposes of our analysis we incorporate additional provisions in expectation that BNP will face a US legal penalty in the amount of US$7.5 bn, based on the midpoint of the latest two amounts reported in the press (US$ 10bn, WSJ, 5/29/2014; US$ 5bn, Reuters, 5/21/2014). Recent reports have introduced wide-ranging outcomes. Other examples suggest that settlements can reach the top end of the range (e.g. media put Credit Suisse litigation charge at $1bn, rising to $2.5bn. The settlement on May 20 was $2.6bn). This reduces our 4Q14 CET1 capital estimates to 10.2%.

So - sell French banks and... buy US banks? Seems like the Treasury's Terrorism unit is working full-time these days.