Societe Generale Resists Pressure for More Deleveraging
“The generation of capital is strong,” Oudea said in an interview with Bloomberg Television today. Asked whether a fresh asset-cutting plan was needed, he said “I don’t think so. We decreased the assets by 10 percent with the deleverage and we’ve not touched the model.”
Societe Generale joins BNP Paribas SA (BNP), France’s largest bank, in saying it has already taken the measures needed to meet more stringent global standards on leverage. Europe’s banks have been cutting risky assets and building up capital to meet tougher rules from regulators seeking to avoid a repeat of the taxpayer-funded rescues of 2008. Societe Generale, Barclays Plc (BARC) and Deutsche Bank AG need to do more on leverage, JPMorgan Chase & Co. (JPM) said in a report last month.
Societe Generale won’t draw up new plans as the bank will achieve a ratio of equity to total assets of 3 percent, the leverage threshold proposed by global regulators for the start of 2018, by the year-end, Oudea said. A rights issue, such as that announced by Barclays Plc this week, is “not at all” needed as the bank’s core Tier 1 capital ratio under Basel III rules will rise to close to 10 percent by year’s end, he said.
Societe Generale will need to reduce assets by a further 53 billion euros ($70 million) to meet the 3 percent guidance by 2015 under Basel III rules, which are expected to be enhanced, JPMorgan said in the report. The bank has too much leverage, Berenberg Bank said in a report published in June.
Deutsche Bank, continental Europe’s biggest bank, said two days ago that it will shrink its balance sheet by 250 billion euros to cut leverage, joining Barclays and UBS AG (UBSN) in seeking to comply with stricter capital rules.
Capital measures weighted by risk, such as the core Tier 1 ratio, should be preferred over leverage measures, said Oudea, who chairs the Institute of International Finance’s steering committee on regulatory capital.
“We are risk managers,” he said. “I don’t like the leverage ratio because fundamentally you don’t look at the quality of the assets. The leverage ratio can be a backstop, not the backbone of the regulation.”
Deleveraging “has been done,” BNP CEO Jean-Laurent Bonnafe told journalists yesterday. JPMorgan said BNP has “to do few business changes” to meet leverage requirements.