French bank Société Générale announced plans to cut costs and sell assets in order to free up 4 billion euros in Fresh capital on Monday, but the surprise move failed to prevent French bank shares from selling off today on fears of an impending Greek debt default.
With French bank stock prices selling off since the beginning of the summer, some have speculated that the government would have to intervene and recapitalize its banks. BNP Paribas leads today’s decliners, falling 12.52% as of 1:44 PM GMT today, while Credit Agricole and SocGen are down about 9%. All three are trading at levels not seen since early 2009.
In an attempt to fight against the extreme volatility on financial markets of late, SocGen Chief Frederic Oudeau promised fresh asset sales, cost cuts, and staff reductions, but given the current situation, with French banks currently holding $13.4 billion in Greek debt, most investors said the move offered little confidence.
“The plan remains of minor interest as long as SocGen is caught in this spiral of negativity on financials,” said Yohan Salleron, fund manager at Mandarine Gestion. “Banks’ own announcements are fading into the background.” Investors are waiting to see whether the French government will intervene as the British and other governments were forced to do in the first wave of the financial crisis in 2008 and 2009.
But Bank of France Governor Christian Noyer insists that French banks have no liquidity or solvency problems, and will be able to withstand any Greece-related crisis. SocGen CEO Frederic Oudea said this morning that French banks were “solid” and that there have been no discussions concerning a possible state intervention. It is the “extreme nervousness and volatility on financial markets” that the bank is responding to, said Oudea.
SocGen will sell assets, primarily in its asset-management and specialized financial services divisions, in order to raise up to 4 billion euros in capital by 2013, while also cutting back on less-profitable financing activities. But analysts estimate that, even after selling its Securities Services custodian subsidiary, SocGen would have to sell another 25 billion euros’ worth of risk-weighted assets, assuming no capital gains on the transactions, in order to reach its target.
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The bank’s market value has declined more than 60% since the end of June, but today’s sell off has been almost completely the result of an imminent Moody’s credit downgrade and the possibility that Greece will exit the euro zone. Still, Oudea is taking steps that have been a long time coming, as the bank’s short-term liquidity profile has been very poor compared to its peers for some time now, sparking discussions of a possible merger as the most likely solution to the bank’s problems. Oudea quashed those rumors in an internal memo to employees on Friday.