Force majeure

12 September 2011 By Margaret Doyle

SocGen’s plan to dump assets and staff to soothe investors’ concerns couldn’t prevent a meltdown of French banking shares. The government says talk of nationalisation is “premature”. But with another downgrade looming, it might have to step in to avoid a panic.

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Societe Generale is to accelerate its “transformation” programme in response to turmoil in European sovereign debt markets that saw the French bank’s shares lose two thirds of their value between their February peak and their Sept. 9 close.

SocGen said it would free up 4 billion euros of capital through disposals by 2013, equivalent to 100 basis points of core tier 1 capital as measured under tough Basel III rules. The bank is to reduce the balance sheet of its corporate and investment bank, and will cut costs there by 5 percent.

SocGen said it had got rid of 3.5 billion euros-worth of assets in this quarter, without any impact on the income statement. The bank added that it has issued all of its long-term debt for 2011, and that it had managed to secure dollar funding, despite the effective withdrawal of U.S. money market funds.

SocGen also “categorically denies the totally false and irresponsible allegations made by the Mail on Sunday (Daily Mail) in the UK about any potential specific discussions with the French government concerning the situation of the bank.”

French industry minister, Eric Besson said on Sept. 12 that it was “totally premature” to talk about partial nationalisation of French banks.

Christian Noyer, governor of the Bank of France, said French banks have no liquidity and solvency problems and can withstand any crisis event in Greece. He added that the banks would continue to build capital in line with Basel III rules.

Despite the reassurances, French banks fell sharply in morning trading. At 0952 GMT, SocGen was off 9.69 percent at 15.76 euros, Credit Agricole was off 9.74 percent at 4.89 euros and BNP Paribas was off 11.96 percent at 26.24 euros.

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