That’s CDOs of RMBS to be specific.
And the erstwhile structured finance favorite (plus some revaluing of CDS) is behind the fourth-quarter profit warning issued by the French Bank on Wednesday morning.
Here’s the detail, from the statement:
And that’s a default rate of 16.5 per cent (up from 14.3 per cent) for the 2005 subprime loans, presumably part of the bank’s portfolio of unhedged super senior tranches of US RMBS, after the new liquidity discount. The need for a higher default rate is a bit of a surprise since ABX indices, which SocGen has previously used to help value its CDOs, have actually recovered in recent months.
It’s also a bit of a surprise since the bank was meant to have “hedged, amortised or sold” its subprime RMBS portfolio back in 2008, with just €35m left in residual exposure at the end of 2007.
So much for legacy assets.
Shares are down about five per cent in early European trading:
Related links:
Pricing CDOs with a smile – SocGen model (2005)