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SocGen comes to town

Submitted by Bruce Krasting on 09/14/2011 07:24 -0400

The boss at SocGen, Paris is in NY. This is not a vaca; this is a road show. Frederic Oudea is here to blunt the impact of a downgrade by Moody’s. He gave an interview with Bloomberg and he plead his case. I’ll let the stock market decide if they like what he said.

A recap of the stock performance is in order. Yesterday SOGN fell to a 52 week low of E14.31. The peak was E52.70. So this puppy is down 73%. So much for the poor widows and orphans who thought they were buying a nice “safe” bank stock that paid a dividend to boot.

By the end of the day the stock did a complete U-turn and ended up 15%. I supposed the longs cheered the bounce. I’m sorry; this is just insane volatility. One would have to be either nuts or a gambler to play in this space.

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.

Question: Can SocGen do a rights offering and raise E5b? I would think not. That would be a 40% dilution. A recap in the equity market is closed for the time being.

They might be able to raise preferred equity, provided they gave out cheap warrants on the common. (Ala Buffett) But what would that cost? The dividend on the common is sitting a ridiculous 11.25% yield. To get a “size” deal done the net cost (including street fees) for a Pref deal would be at least that. And let’s face it, E5b ain’t such a big number any more. I don't think Preferred equity is an option either.

Mr. Oueda makes a good defensive of all this. I urge you to read it. Some things that were said make me wonder what is coming for the global economy. Also, we keep hearing from big bankers that Basel II & III are issues.

We have said we are going to exit certain businesses and adjust.

Is it possible for everyone to de-leverage at the same time? Only If governments buy up the excess debt. That’s what we been doing for the past three years, look forward to some more.

We will escape certain businesses and adjust. Globally, it is fine and I am confident of the profitability going forward.

Escape? He could have said this better. No one in his position can be so confident about future earnings. That’s why the stock is getting shot, after all.

We have a wide range of assets that we can dispose, and effectively. Good assets, predominately in specialized financing and our global investment management and services. We will dispose that in the next few years to meet the capital requirements of Basel III.

Steady selling. At least two years worth. Who’s buying? The Chinese? Nah.

Yes, we've said also we will effectively reduce our costs in different activities, in different countries, for example, in Russia, where we merge our subsidiaries and we will cut the staff by next year. Also in countries like Poland.

Bye bye Eastern Europe. Isn’t Poland in the EU? Sure they are. Seven years already. So this is just passing the trash.

It puts pressure on the investment banking side and that's why we just announced that we are deleveraging, that we will refocus and exit certain businesses. We suffer from Basel II.

IB requires too much equity, so cut it out. But where’s the earnings after that? Retail banking? Ugh!

Compared with the banks who invested a lot, we have less to do.

This is both accurate and scary. The clear suggestion is that many of the banks in Europe face much steeper problems than SocGen. I thank the CEO for this important clarification.

I hope Mr. Oueda has an enjoyable stay in NY. I very much doubt that he will.
.

I close, as always, with graffiti. This time from France. “Destiny is not written – It’s what we do”.

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Thu, 09/15/2011 - 15:46 | 1674406 janus

here's some REAL french graffiti:

A REVOLUTION IS AN IDEA THAT HAS FOUND ITS BAYONETTES!!!

Napoleon Bonaparte, BITCHEZ!!!

vive la revoluton! vive l'esprit de napoleon!,

janus

Wed, 09/14/2011 - 14:23 | 1669592 Cpl Hicks

French graffiti.

So classy. Understated. No loopy, drippy swaths of aerosol madness.

Why aren't they in charge of the world?

Wed, 09/14/2011 - 14:52 | 1669721 CompassionateFascist

After MHFT's post, my sarcasm meter is burned out. Here's why the French are not in charge of the world: "For Sale: one French infantry rifle. Never fired. Dropped once."

Wed, 09/14/2011 - 13:44 | 1669349 Joebloinvestor

This guy lives in ZOMBIE land and tries whistling past the graveyard.

Wed, 09/14/2011 - 10:33 | 1668415 mccoyspace

A variation on an epithet thrown at Mitterrand in the 80's comes to mind: Oudea tonton magouille.....

Wed, 09/14/2011 - 09:59 | 1668179 TheArmageddonTrader

More likely in NY just arranging some dollar repos.

As for raising capital, it will be state money, but trouble is, just 5% of SocGen's assets = ~2.5% of French GDP. All three big banks need capital. Result = rising rates on French bonds, downgrades.

Wed, 09/14/2011 - 09:29 | 1668122 disabledvet

Nice call. Only took you two hours to be right as the mail.

Wed, 09/14/2011 - 09:22 | 1668086 seanheberling

How many global banks are there these days? Is there any legitimate reason for all of them to exist? I once met a portfolio manager at an investment conference focused on mining companies who also analyzed these types of financial institutions. His argument was that the financial products they offered were commodities, just like what mining companies sold. I agreed.

liquidinvestor.blogspot.com

Wed, 09/14/2011 - 09:11 | 1668023 lizzy36

No worries.

ECB's Noyer has said the French Banks decline is due to uncertainity over DIVIDEND POLICY.

Phew glad that is cleared up.

Wed, 09/14/2011 - 09:03 | 1667993 rocker

Short Interest is at it's highest ever. Scumbag Prechter EWI forcast the S&P to go down from 1140. He is wrong again.

One blog said he was Prechterized. The point is this. Short interest is too high for the HFTs to let the market go down.

They will not let all those shorts drain that money out. They must wait till they get rid of more shorts.

Afterall, Goldman, JPMorgan and a few others will drain the money out again as soon as they get rid of shorts.

This is extremely Bullish for now. The banking system is collapsing right now. But extend and pretend continues.

This is extremely Bullish too. You can't fight the FED and Geithner is selling out the tax payer as I speak.

America is so Fucked. If you go long do not buy stocks. Buy indexes.

Wed, 09/14/2011 - 09:15 | 1667972 ParisianThinker

The boyfriend who works there says all is ok. The worst is that the SocGen will be nationalized.

But don't forget, it was nationalized to begin with and then only became privatized in 1984.

This is how things work under capitalism, especially French capitalism.

Profits are religious in nature, therefore "sacred". Unfortunately, profits are only for those who are in the club this time around.

The debts, if the "club" screws up, like "Fred" is doing and will continue to do, is only for the innocent French and workers in Eastern Europe.

It is their salaries which will be hit and their stock options, but not Fred's salary. LOL

This is the way of the world. It will never, ever change.

SO.........DON'T LOOK FOR CHANGE, n'est pas? It will all be nationalized and reblessed as a good thing.

Wed, 09/14/2011 - 14:17 | 1669548 IQ 145

Okay. thanks for the news from the front. Makes perfect sense to me.

Wed, 09/14/2011 - 08:38 | 1667919 Zola

Soc gen CEO said that of GIPS exposure they had 45Billion and mark to market loss of 450 million... really ? That seems quite low. Also what is the rest of the massive 1trillion in assets ?... This was not discussed.

Wed, 09/14/2011 - 08:33 | 1667909 ToNYC

Hundreds of Billions in currency swaps since 1985 James Baker days and the Plaza Accords are the wild card. The Fed and IMF are marking the escape zones and life-support endgames.

Wed, 09/14/2011 - 08:12 | 1667854 frank888

Who is right, who is wrong ?

I remember, few years ago, there was already like an histeria among the US traders against the euro. Many forecast an euro a 1 vs. the US$.

Right now, its good for the US to have the "stone" in the "euro garden "....

So...

Wed, 09/14/2011 - 08:05 | 1667841 Poule Mouillee

Zut alors!

Wed, 09/14/2011 - 08:03 | 1667827 Captain Benny

He dodges a number of key questions. Either he's intentionally doing so or he's just a really poor interviewer. Regardless, I think its pretty clear that they are indeed having dollar funding issues.

This guy says that there have been no contingency plans with the French government. If there are no contingency plans, I'd say they are either ignorant of the facts of the Euro situation or he's once again lying. I can't imagine that nobody from the French govt hasn't even given SocGen a phone call to arrange contingency plans.

Wed, 09/14/2011 - 14:09 | 1669503 IQ 145

I dunno about the contingency plan; the French like to use their special French superior knowledge of the situation, rather than make continency plans. for instance, Plan B for the Maginot line in WW2 was, "don't be silly, no one can come through the Ardennes Forest"/ and we know this how? because we have special French Knowledge. There may be no contingency plan.

Wed, 09/14/2011 - 07:59 | 1667826 Irish66