Soc Gen CEO Frederic Oudea – “The Valuation of Everybody is Going Down”

Societe Generale CEO Frederic Oudea spoke on Bloomberg TV’s Erik Schatzker today about the outlook for the bank and Europe’s debt crisis. Oudeau said that he is “sure we will be able to regain confidence” once investors understand the figures, and that “a big merger is [not]the solution to this crisis of confidence on the eurozone.” Excerpts from the interview can be found below, courtesy of Bloomberg Television.

On how SocGen will stop the pressure on its shares and CDOs:
“Just by presenting the facts. For [Societe Generale], the exposure to sovereign debt is low, absolutely manageable. People need to look at the figures. Secondly, in terms of liquidity, we have plenty of liquidity and we are adjusting through the reduction of the money market fund exposure. So based on a sound balance sheet, good business sense, we will say to people, look at the figures, forget about perception and irrational fears.”

On the fears around SocGen’s balance sheet:
“I am here today in the U.S. where I will make a presentation — line by line on the sovereign debt, on the mark to market. It’s again very small figures. We fared the turbulence very well from a market risk perception. We had the lowest stress test that we ever had, so we had very conservative positions. I will say that to the market, present on the liquidity, the amount of buffers that we have to manage against the crisis.”

On how SocGen’s balance sheet would react if Spain or Italy defaulted:
“In total, for Greece, Ireland, Italy, Portugal and Spain, we have 4.3 billion euros of sovereign debt in our banking book. The mark-to-market — on the 9th of September, for the whole thing, including all the five countries, is minus 400 million euros. It should be compared to 41 billion euros of capital. I think, again, people need to look at the figures.”

On rumors surrounding SocGen:
“There was also an article saying [SocGen] were close to bankruptcy. This article was absolutely false. The journalist said it was absolutely false. So, I would like to say, be careful with what you say.”

“We saw a reduction of the exposure to money-market funds to the European banking sector. All European banks are concerned. We manage that and I will present that. We have significant cash deposits to the Fed, $34 billion at the end of August. We have reduced our funding needs in dollars and we have buffers that can use if the situation carries on. I will communicate all that to the market and I am sure we will be able to regain confidence.”

On how long French banks could hold out if they were locked out of short-term U.S. dollar funding:
“The amount of money market funds, funding resources, compared with the amount of buffers, is much smaller. We have 105 billion euros of liquid assets, 80 billion available to the  central banks. It is much more than the current exposure to money market funds. Even if it were to go to zero, there would be no problem – forever.”

On what would happen to SocGen’s Greek subsidiary if Greece were to go bankrupt:
“To a certain extent, I would feel it might be easier to manage a subsidiary if the pressure on taxes and all that is alleviated by whatever happens on the sovereign debt. It’s a subsidiary with 3.3 billion euros of loans, with already big provisioning. Compared to the size of our operations, the size of our capital, again, it is not something that is significant.”

On whether SocGen still has access to all its counterparties:
“We have access to a wide range of counterparties. The clients see what is happening on the market. All the banks see their CDS raising, we talk to the market, we talk to our counterparts, we explain where they stand.”

“Fundamentally, we have adjusted and we have cut certain short-term market exposures. We have said we are going to exit certain businesses and adjust. We will escape certain businesses and adjust. Globally, it is fine and I am confident of the profitability going forward. We need to adjust to a new environment and we will do that, with all teams on board motivated going forward.”

On whether there has been discussion with the French government and SocGen about contingency planning for default:
“There has been no discussion on such things. The French banks have a good level of capital, I think you need to take it into account, and they have reinforced their capital base in the last few years significantly. Secondly, the French banks have good businesses. In particular, the French retail banking, compared to what we saw in the U.S. during the crisis, works in a very different. We have very steady businesses, we can make profits and we can retain our earnings and be in line with the requirements of Basel III.”

On whether new capital requirements put pressure on the investment or retail side of SocGen:
“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. On the retail side, fundamentally there is no change. These businesses are resilient and have good capital levels and there are no additional capital requirements for Basel III.”

On what SocGen is going to sell to free up 4 billion euros of capital:
“I’m not going to announce that because it’s the best way to destroy value. 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.”

“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.”

On how many jobs will be reduced:
“Let me just say, we should be careful with announcements. We did not invest that much in the last two years. We have been much more progressive in our investment. Compared with the banks who invested a lot, we have less to do.”

On whether he would consider selling or merging SocGen:
“The valuation of everybody is going down. I don’t think a big merger is the solution to this crisis of confidence on the eurozone. Governments need to get their act together. On our side we need to adjust, and that is what we are doing today.”

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