Greek Bonds, Dexia Trash, French Postal Service, & Profit

Wolf Richter

Two freaks—Greek bonds and bailout-queen Dexia—wormed their way into another earnings announcement today, this one by the French postal service. Nevertheless, La Poste made a profit and is going to pay a dividend to its owner, the French government. It has its share of strategic problems and government interference, much like the United States Postal Service, but only the USPS is run by 535 clueless micromanagers in Washington.

The USPS is a big business with $64 billion in sales last year, and a loss of $10.6 billion, counting the retiree health benefits that it deferred to 2012. In the first quarter this year, it had a loss of $3.3 billion. Revenues were down 1.1%, not bad. But volume was down 6%. So it needs to get its costs in line—but as its quarterly report points out, “the return to financial stability requires legislation....”

Requires legislation. Even decisions normally made by middle management—such as product pricing, delivery schedules, location of retail outlets and distributions centers—have to be approved by Congress whose 535 agendas are focused on reelection and bringing home the bacon, and not on turning the Postal Service into a real business. And the situation is dire. The Postal Service announced that it might default on its health benefit pre-payments this year and that it might run out of cash. Not exactly the kind of Wall Street hype investors drool over.

So the French postal service announced its earnings today. Not only did La Poste, which includes the retail bank, Banque Postale, make money, but it also dressed up its numbers in Wall Street hype. How refreshing!

It had €21.3 billion in revenues in 2011, up 1.2%, with an “adjusted income” of—drum roll—€931 million, up 20.1%. It then posted a less “adjusted income” of €661 million, up 22.9%. And finally, well, it posted a net income of €478 million, down 13.1%. Higher postage and new services along with package delivery and express mail made up for a 3% decline in mail volume. Everything in its report had a positive twist.

Why can’t the USPS dress up its announcements like that? I'd suggest $1 billion in “adjusted income”; and after accounting adjustments, write-offs, and other charges, a net loss of $3.3 billion. We’d take the $1 billion and run with it. If the USPS ever wants to become a real American corporation, it will have to learn how to properly present its financials. Doom and gloom don’t inspire confidence. How come a French government-owned enterprise can speak our language better than we can?

La Poste is being privatized at a snail’s pace and against popular resistance. In 2010, it became a corporation with the state as the sole stockholder. The sale of a 2.99% stake is back on the table. Expect some strikes along the way.

Its subsidiary, Banque Postale, has over 11 million clients with bank accounts, out of a total population of 65 million! It recently added consumer credit and insurance products to its offerings, thus becoming more like its publically traded sisters. And, like them, it had loaded up on a secure investment, Greek bonds.

So it announced that it would participate in the Greek debt swap. And it wrote down its Greek bond holdings by €241 million. For more on the Greek debacle, read.... “The Bottomless Barrel,” As Germans Say.

And then, tucked into the report, is bailout queen Dexia, the Franco-Belgian mega-bank that collapsed and was bailed out in 2008 only to re-collapse and get re-bailed out in 2011. Among its many reckless acts, it had sold structured loans to French municipalities and communities that had no clue what they were getting into. These loans were based on the Swiss franc. When the franc skyrocketed, interest on these loans skyrocketed as well. Towns and communities could no longer pay. And voilà, toxic subprime à la française.

With €25 billion in loss guarantees from the taxpayer, the Banque Postale and the Caisse des Dépôts (France's state-owned investment bank) took on these toxic loans. They will regroup them into a joint venture owned 65% by the former and 35% by the latter.

Dexia inflicted much more treacherous wounds on the tiny Kingdom of Belgium which guaranteed its debt, nationalized subsidiaries, and bailed out the rest of the financial sector. Exposure: €162 billion—41% of GDP! And it’s turning into a nightmare as Dexia announced monumental losses. But finally there is some resistance against these endless bailouts. Read.... Belgians Get Cold Feet As Bailout Queen Dexia Drags Them Toward Abyss.