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Rumors were close to destroy the Société Générale

4 Billion losses related to ETFs, losses in its Greek subsidiary and ECB rescue amounting € 5 Billion...this is an anthology of the rumors that ran in the markets about Société Générale.

Article also available in : English EN | français FR

For two days, many rumors have panicked the market about the financial health of the Société Générale and more generally of all those French banks. early on the morning of August 11, a rumor indicating a loss in ETFs management would have cost a whopping € 4 Billion to its subsidiary lyxor. Later that day, several brokers reported a use of emergency with the ECB from a French bank, for a amount of € 5 Billion.

The AMF (French Market Authority) had to intervene and issue a press release stating that the regular functioning of markets was altered by the spread of unfounded rumor about financial stocks listed in Paris. "The spread of unfounded rumors can be a form of failure that may lead to punishment, as well as the fact of benefit of it", stated again the stock market authorities, which warned that it would take "all the conclusions".

"The strength of French banks is not affected by recent developments in the markets", said on Thursday the French central bank governor Christian Noyer, who had to cut short his vacation and go to the little phrase , while French banking stocks were attacked on Paris stock exchange. Christian Noyer said in a statement referred to the "unfounded rumors affecting the French bank" and stressed that "the results published by the French banks for the first half of 2011 confirmed their strength in a difficult economic environment, through careful risks management and universal banking model based on diversified activities"."The levels of capital valued in conjunction with the equity are adequate and the medium and long term refinancing programs are conducted under conditions quite satisfactory", he has said.

Nevertheless, the suspicion has won the Asian partners of French banks. A bank in Asia has cut its credit lines to major French banks and five other Asian banks are revising their lending conditions , said six banking sources to Reuters, on Thursday. The sudden increase in the risk sentiment, associated with the sharp fall in the share prices of French banks on Wednesday, prompted some banks in Asia to review their counterparty risks and check if whether they should reduce their exposure to European banks, said some Asian sources to Reuters.

The head of risk management within a bank based in Singapore said it had cut its credit lines to major French banks because of perceived counterparty risks."We’ve cut. The limits have been removed from the system. We must obtain authorizations for each case", he told Reuters, declining to be named because of the sensitivity of the subject. he declined to name the banks involved, the agency said. Bankers and risk managers in five Asian financial institutions, who continue their lending to French banks, said they were reviewing the long-term credit lines on all types of transactions, while transactions of short-term loans up to 30 days were still in place."Obviously, we’re reviewing credits", the head of risk within a bank a bank in Singapore."Everything is related to our position in the credit risk position of the French banks, whatever it’s a swap or a interbank credit transaction", said another banker in a Japanese bank.

Asked about this change in perception of Asian banks vis-a-vis the French banks, a spokesman for BNP PARIBAS said:"We never comment on market rumors". Credit Agricole did not want to comment either, while no comment was immediately available from Societe Generale.

However in the late evening, a statement from BNP Paribas stated: "As far as we are concerned, BNP Paribas reminds that, thanks to its strong recurring earnings power based on a diversified business model and a rigorous risk management, its solvency ratios have continued to increase quarter after quarter, to reach a Core Equity Tier One ratio of 9.6% at June 30, 2011. its profit before tax of the first half of 2011, published on August 2, 2011, amounted € 7.4 Billion and its profit after tax to € 4.7 Billion and this, after provisioning in line with the agreement of 21 July on Greek debt. The return on equity of BNP PARIBAS allocated after tax in the first half was 13.8%, one of the highest among banks in the Western world"

Next Finance , August 2011

Article also available in : English EN | français FR

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