SocGen Can Reach 4% Leverage Ratio by Cutting CashFabio Benedetti-Valentini and Caroline Connan
Societe Generale SA, France’s second-largest bank by market value, would be able to meet tougher leverage rules by reducing its cash deposits at central banks, Chief Executive Officer Frederic Oudea said.
“Today we have lots of cash with the central banks, we will anyway cut that,” Oudea said in an interview with Bloomberg Television outside Paris, indicating the firm may trim those deposits by about 30 billion euros ($40 billion). Asked whether the bank could improve its leverage ratio to 4 percent should regulators require it, he said: “Yes, of course.”
Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of 17 euro finance ministers, is seeking stricter leverage rules for Europe’s banks. Those deemed too big to fail should aim for a ratio of capital to total assets of at least 4 percent, more than the 3 percent standard proposed by the Basel Committee on Banking Supervision for 2018, he said Aug. 23.
International regulators are considering tighter leverage requirements to prevent a repeat of the taxpayer-funded bank rescues of 2008. Lenders including Societe Generale and Germany’s Deutsche Bank AG have criticized the focus on the leverage ratio. They and competitors have sold assets and hoarded earnings to increase a different measure of financial strength known as the Basel III capital ratio, which weights assets depending on their risk.
Societe Generale rose 1.5 percent to 33.57 euros by 11:37 a.m. in Paris trading, bringing the gain this year to 18 percent.
“Beyond one figure, it’s very important to say the leverage ratio is a bad way of looking at banking,” Oudea said. The leverage ratio should be “a backstop, not the backbone of the regulation,” he said.
Deutsche Bank co-CEO Anshu Jain said in a speech in June the leverage ratio is “too simplistic” because it doesn’t reveal anything about the quality of assets.
Societe Generale’s deposits with central banks stood at 78 billion euros at the end of June, an increase of 32 billion euros from a year earlier, according to its website. Societe Generale is among the European banks that increased cash deposits at central banks amid Europe’s sovereign-debt crisis.
Those deposits are “a kind of cushion, it’s a kind of insurance,” said Oudea, 50. “With all the progress we have made, we are going to reduce that.” Such cuts will help the company’s earnings, he said, without providing a timeframe for the reduction.
Societe Generale’s profit more than doubled to 955 million euros in the second quarter, helped by a surge in investment-banking revenue, the Paris-based bank said on Aug. 1.
Its core Tier 1 capital ratio was 9.4 percent at the end of June, an increase of 0.73 percentage point from the end of March, the bank said. Societe Generale’s leverage ratio is already at 3 percent, Oudea reiterated in the interview.