Oudea Says SocGen Can Resist U.S. Money-Market Freeze
Societe Generale (GLE) SA, France’s third-largest bank by assets, said it could resist a freeze in dollar financing from U.S. money-market funds, which cut their lending to European banks amid the euro debt crisis.
“Even if it were to go to zero, there would be no problem,” Societe Generale Chief Executive Officer Frederic Oudea said in Bloomberg Television interview today. The bank could withstand a freezing of financing from U.S. money-market funds “forever,” Oudea said.
Societe Generale has 105 billion euros ($143 billion) of liquidity “buffers” and has reduced its funding needs in dollars, Oudea said. The Paris-based bank said yesterday it plans to free up 4 billion euros in capital through 2013 to reassure investors about its financial strength.
“It’s a clear message on funding,” said Pierre Flabbee, a Paris-based analyst at Kepler Capital Markets. “Until this morning the question was: The French banks have access to short- term liquidity, yes or no? We’re starting to get the answers.”
Societe Generale rose 15 percent to 17.9 euros in Paris trading, the biggest daily gain since May 2010, giving the bank a market value of 13.9 billion euros. The stock has fallen 56 percent this year. BNP Paribas SA, France’s largest lender, rose 7.2 percent after plunging as much as 12 percent amid concern on funding in U.S. dollars.
No counterparties have raised collateral demands with Societe Generale, Oudea said today. “We have access to a wide range of counterparties.”
Societe Generale and BNP Paribas dropped more than 10 percent yesterday on a possible ratings cut by Moody’s Investors Service because of their holdings in Greece. French lenders top the list of Greek creditors with $56.7 billion in overall exposure to private and public debt, according to a June report by the Basel, Switzerland-based Bank for International Settlements.
U.S. money-market fund managers have cut their lending to French banks at a pace that may force the banks to raise capital by selling assets, according to a Sept. 9 report by William Prophet, a desk analyst at Deutsche Bank Securities Inc.
“French banks have been strongly hit by funding concerns, sovereign exposure and nationalization fears,” said Herve Samour-Cachian, senior equity fund manager at Natixis Asset Management in Paris.
Nicolas Lecaussin, director of development at the Paris- based Institute for Research in Economic and Fiscal Issues, wrote in an opinion piece in The Wall Street Journal today that an unidentified BNP Paribas (BNP) official told him the bank could no longer borrow in dollars.
BNP Paribas denied the claim in an e-mailed statement, saying it is able to finance its dollar needs at normal levels “directly and through foreign-exchange swaps.” The lender has 135 billion euros of assets eligible to central banks, including $30 billion eligible to the U.S. Federal Reserve, it said in an e-mailed presentation today.
U.S. Money-market funds represent most of BNP Paribas’s 60 billion euros of short-term U.S. Dollar net funding resources, it said. The firm gets 36 billion euros of its financing from U.S. money-market funds, compared with 46 billion euros on July 29, bank data show.
‘Shortening of Resources’
Prime money funds in the U.S. reduced their holdings in certificates of deposits issued by French banks by about 40 percent in the three months through Aug. 11, Prophet wrote in his report, based on a review of seven of the 10 largest funds eligible to purchase corporate debt. The proportion of the remaining holdings maturing in less than a month increased to 56 percent on Aug. 11 from 17 percent on June 11.
BNP Paribas used foreign-exchange swaps “to more than offset recent reduction and shortening of resources” from U.S. money-market funds, it said. The bank has “strong and solid funding” as well as “flexibility” as it carries 65 billion euros of short-term U.S. dollar assets, the company said today.
“Alternative U.S. dollar funding sources are of course more expensive and we have to pass that additional cost on to our U.S. dollar borrowing clients,” BNP Paribas said in the Sept. 6 note to clients. “In practice, some of them may not accept and U.S. dollar funding needs may come down.”
Societe Generale reduced its short-term dollar funding to 60 billion euros by the end of August from 72 billion euros at the end of June, the bank said yesterday.
“We have plenty of buffers of liquidity and we are adjusting to the reduction in the money-market fund exposure,” Oudea said today. “For our bank, the exposure to sovereign debt is low, absolutely manageable.”
Societe Generale carries 4.3 billion euros of sovereign debt related to Italy, Spain, Greece, Ireland and Portugal in its banking book, the company said yesterday. As of Sept. 9, the market valuation of the exposure to these five countries was about 400 million euros “below book value,” the lender said.
“It should be compared with 41 billion euros of capital,” Oudea said today. “I think again that people need to look at the figures.”
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