The Banking and Strategy Initiative

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Banks do not want "Debt Deals" with SocGen and Credit Agricole

Crédit agricole bank in France

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Even as SocGen and Credit Agricole survived a scare by Moody’s, there downgrade to AA3 and AA2 respectiely was not the most significant action against them.  In 2011 lenders in the interbank market have virtually shied away from these banks driving up their CDS in the last month by a factor of 2 from even earlier marks of 150-160 bps they shared with BNP

SocGen and CA CDS now trade at 400 bps and 300 bps respectively probably as BNP’s debt reduction efforts ( in assets) are seens as saving the bank and keeping the bank from going under much more effectively

Bank Libor has risen in August to almost 5 times the near zero experience since 2010 to 0.2% but even here SocGen fears have driven their rates to 0.24% , a marked dfference if you not the slipping spreads

US funds have withdrawn $50 bln from French Bank investments in August a majority accounted for by the Top 3 incl BNP

Reuters Insider link:

French banks have bigger worries than downgrade: analysts,

Thomson Reuters: Reuters Insider
What really went down?
Inter Bank Debt Markets have changed

Pursuant to new Basel 3 regulations Inter bank debt has been pared down at most banks as there is a limit beyond whioch it does not count as capital nor does it effectively enhance liquidity for the banks. At that time when this was deemed the future in late 2010, most felt that Deutsche Bank and maybe BNP would pay for their profligacy in the interbank market and that the other French Banks did not have that much inter bank exposure, nor  did they have debilitating sovereign exposure. Socgen and CA did survive that happenstance in the market albeit technically. What has happened since is that in 2011 lenders in the interbank market have virtually shied away from these banks even as UBS reported trading brouhahas and Deutsche Bank reported a much more crippling effect in trading.

French Banks need more Capital

As early as July French Banks’ investors have been leaving the ship even as the French IMF leader Christine Lagarde called for a recapitalisation of all banks. A $50 bln bill for the French government would mean that the government would be adding nearly 40% to its debt bill and itself probably evaluating its target criteria for staying in the EU Money funds can form upto 40% of the banks’ capital and investors in the Banks equity and debt thru rollover mechanisms, Even as this would be now regulated upto15% can still come from banks ( a cursory glance at Basel 3 regulations) and maybe another few points from funds. As these were misused to the hilt in the earlier edition ( remember blaming 105s on Lehman) for bank governance, they have been whittled down in the las few mmonths. Thus every dollar leaving now is probably thrice as more significan for the banks cmplicated by marked down equity of GIPSI debt which has lost nearly 20-50% in vlaue across Greece, Spain and Italy and now France would be counted mong the same if a quick recapitalisation is heeded.

Market Value decmated/ Equities lose 50% over year 

Bruce Krasting suggests at his zerohedge blog, that SocGen has really whittled down its value of assets ( or it will come right back tomorrow? unlikely)

The market cap of SOGN as of the close was E12b. That is the bottom of a pile of assets that total E1.3T. The market cap to assets is only 1.0%. Compare that to Wells Fargo @ 10.0% and you see the problem. Even stinky old BAC has a 3.30% of market cap to its balance sheet.

European shares have in the meantime picked up on good news build up for Greece from emerging markets investors, US and even Germany and France I woud say SocGen is headed to a market cap of not more than 6 b and is probably going to lose half the RWA valuation too. Probably 20b in losses will wipe out its networth Of course Paris could recapitalise banks by Euro 10 bln each before that or even more raising its sovereign debt by 30-40 bln in hope of a fresh Eurobond issue for itself

UBS pulls off yet another Kerviel

The UBS rogue trader is yet another cover as so calle drogue trades have wiped out the banks profits for the immediate quarter and maybe much more as UBS gets nearer to the feared shutdown of its Investment Banking we reported last month when things sowed down for it in UK and US on the office real estate front UBS will focus on its wealth management from here



Société Générale's central branch, in Paris, n...

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Basel Office of Swiss Bank Corporation, one of...

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