Societe Generale Still Afloat
November 4, 2008 – 9:27 amSociete Generale SA is fighting desperately to stay afloat, but without a life raft from the French government, this boat would already have sunk. The bank reported its fiscal 2008 second-quarter earnings on August 5, and then it raised $8B from bondholders three days later.
Societe Generale SA took advantage of better-than-expected earnings to borrow $7.9 billion from bondholders this week, including its biggest sale of notes in euros since 2006.
France’s second-largest bank raised 3.95 billion euros ($5.9 billion) a day after reporting profits that sent shares up 9.4 percent, and got a further $2 billion yesterday, according to data compiled by Bloomberg. The bank accounted for more than half of total European bond sales at 6.5 billion euros, below the year’s average for a seventh week and 42 percent down on last week.
Societe Generale SA took advantage of better-than-expected earnings to borrow $7.9B from bondholders this week.
We might point out that in this case, “better-than-expected” means ”not dead yet.” By our account, their earnings took a 63 percent haircut.
As Societe Generale reported a 63 percent plunge in profit, the financial press pretended to not notice how sick the bank really is. Simply being on life support doesn’t make the patient healthy.
But the bank, which is still trying to place all of its problems on one mid-level trader, says everything is fine now. They say they’re completely solid.
Six months after Societe Generale announced a record 4.9 billion-euro trading loss from unauthorized bets, Chief Executive Officer Frederic Oudea said the Paris-based bank’s capital position is “completely solid.” Its 575 million euros of markdowns on subprime-infected debt was less than half the level of the first quarter.
“Completely solid” is not a technical term, but one could construe it to mean that future capital raising will be unnecessary. Is that what they mean?
Nevertheless, two weeks before reporting fiscal 2008 third-quarter earnings, the bank had to officially deny rumors that it may need to bolster capital again. Well, the bank got a modest bailout. That’s not really capital raising, is it? From October 21:
The French government may not be pumping as much money into banks like BNP Paribas and Societe Generale as its peers in Britain, but it was enough to spark a rebound in investor confidence on Tuesday.
France’s planned purchase of 10.5 billion euros’ ($13.9 billion) worth of subordinated-debt securities from six major banks propped up leading shares in Paris, which only slipped 0.2%, outperforming the 1.6%-1.8% drop in London and Frankfurt. The three listed banks taking part in the scheme–Credit Agricole, Societe Generale and BNP Paribas –gained between 6.3% and 12.4%, recovering from worries on Monday about their capital health.
The amounts set aside were somewhat lower than expected: BNP Paribas will get 2.6 billion euros ($3.4 billion), Credit Agricole 3.0 billion euros ($4.0 billion) and Societe Generale 1.7 billion euros ($2.3 billion).
Not to be outdone by its second-quarter 63 percent cliff dive, Society Generale announced an 84 percent crash in earnings over the Q3 2007 earnings reported a year ago.
Societe Generale recorded markdowns of about 1.4 billion euros in the quarter, including 447 million euros related to the bankruptcy of Lehman Brothers Holdings Inc. and 453 million euros tied to U.S. bond insurers. Chief Executive Officer Frederic Oudea decided not to use new accounting rules that are less stringent on markdowns, which helped Deutsche Bank AG show an unexpected third-quarter profit.
“We’ve decided to be prudent,” Oudea, 45, said in an interview with Bloomberg Television. “This profit isn’t artificially enhanced.”
It’s prudent to be prudent, after getting burned on guidance
Societe Generale, which published results three days ahead of schedule, said Oct. 13 that it would have third-quarter profit of about 1 billion euros before exceptional items. Loan-loss provisions tripled to 687 million euros from 226 million euros a year earlier, the bank said.
To its credit, Societe Generale is still in the black at a time when many older banks no longer exist. Unfortunately, SG co-occupies the same credit crisis that has taken down so many older banks, and the future promises only smaller earnings and bigger write-downs. No bank can swim there for very long.
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