Follow the money.
A central bank buys government debt. Prior holders of said debt are forced to invest elsewhere. Some are drawn to the corporate bond market, where a similar process repeats itself: corporate bond yields fall, offering cheap financing to companies, who issue fresh debt and end up holding at least a portion of QE cash. Read more
We were NFI on the occasion of the 39th annual Thomson Reuters Extel survey awards ceremony, held at London’s Guildhall on Tuesday. But we shouldn’t allow that to stop us sharing the results.
Highlights: Read more
Via SocGen, click to expand, but careful not to blow on it — it gets creakier the higher up you go:
Société Générale, France’s second-largest lender, on Thursday reported a near 90 per cent drop in fourth-quarter profits, following losses at its investment bank and further writedowns on Greek sovereign bond holdings, the FT reports. However, the bank said it had met tougher regulatory capital requirements six months early, with a core tier one ratio – a key measure of financial strength – of 9 per cent, following in the footsteps of larger rival BNP Paribas. Frédéric Oudéa, SocGen chief executive, expressed confidence that the European Central Bank’s extension of cheap three-year loans to the region’s lenders had eased fears of the collapse of the single currency. Mr Oudéa told CNBC: “I’m happy with the start of the year regarding capital markets [but] I remain overall prudent for 2012. “Clearly the decision made by the European Central Bank with the [long-term refinancing operation] … has been key to reassure the markets regarding extreme scenarios. Still, we will have relatively mediocre economic activity. It’s not a catastrophe, but not that dynamic.” The WSJ noted, meanwhile, that the bank increased provisions for Greek sovereign bonds from 60 per cent to 75 per cent, booking an additional €162m charge in the fourth quarter for the position. Read more
More huge numbers on US dollar asset deleveraging in a French bank’s end-2011 results, on Thursday. Societe Generale got rid of $55bn in funding needs in the six months from June 2011:
Albert Edwards is with Terry Smith on this one. If Shredded Fred must lose his knighthood, then certain other players in this game of bubble and crunch need to forego an honour or two.
But while Smith has focused on Sir Alan Greenspan, Edwards has it in for Sir Mervyn King. From the SocGen man’s latest Global Strategy Weekly… Read more
We know who’s brought this on. It was Ben Bernanke, last week, with confirmation of the Fed’s 2 per cent inflation target. We suspect it’s one debate that is going to grow in intensity.
First to Bruce Corneil, a thoughtful fixed income manager at Beutel Goodman in Canada, who has just published this paper. Read more
A chart from SocGen’s latest Hedge Fund Watch showing that as of last week, hedge funds were short the Euro against the dollar “like never before”…
Were we wrong to say on Tuesday that the performance of US investment grade bonds this year was only “impressive” because they were just following Treasuries down the yield rabbit hole?
SocGen’s big Q4 preview would seem to suggest as much — or at least it would suggest that although we might have been right until very recently, things have changed. Read more
Societe Generale has released ‘hard facts’ about its liquidity position on Monday.
Among the points the bank says it has managed to successfully manage a reduction in access to USD funding through a disposal of USD legacy assets, increased use of secured USD funding (repos), EUR/USD swaps and a “reduction in short-term market positions”. Read more
The investigation into the Societe Generale sell-off looks like it could quickly descend into farce. Read more
Chart via Societe Generale, and to be read in conjunction with the Troika finally admitting that Greece has failed to control its deficit as it demanded in 2011:
While the size of fiscal adjustment being asked for in Greece (and Ireland actually) is in itself historically unprecedented, the pace of adjustment is even more off the charts, SocGen suggests. We reckon that’s quite important when the Troika is going on like a broken record, and arguing that the best solution is to speed up austerity even more. Read more
Société Générale structured a $1bn bet on its own shares for Libya’s sovereign wealth fund after the Jérôme Kerviel fraud in March 2008, according to documents seen by the FT. The transaction had lost 72 per cent of its value by the middle of 2010. The deal was made barely a month after the bank lost €5bn from Kerviel’s rogue trades, with documents specifically citing the fraud’s effect on SocGen shares as a buying opportunity for the Libyan Investment Authority. It further contrasts the extent of losses incurred by the LIA with the lucrative fees paid out to the banks which dealt with it. Read more
It’s a SocGen double header on FT Alphaville this Friday morning.
You’ve had the apprentice (Dylan Grice) and now it’s time for the Dark Sith Lord (Albert Edwards). Read more
Here’s an arresting chart from SocGen strategist Dylan Grice.
It shows gross interest payments as a share of US government revenues under two scenarios. Read more
France’s Société Générale signalled its continued recovery on Wednesday, reporting strong earnings for 2010, reports the FT. Fourth quarter net profit jumped fourfold to €874m ($1.18bn), for a full-year net profit of €3.9bn - equating to a return on equity of 9.8%, 10 times the dismal 2009 result. Frédéric Oudéa, chief executive, confirmed the bank’s goal to achieve net profit of “around €6bn” next year, under a five-year strategy launched in 2010 dubbed “Ambition 2015”. Some of SocGen’s problem foreign operations recovered, with its Russian subsidiary back in the black by year-end. But Greece and Romania performed poorly and overall, international business was flat. SocGen said it was too early to judge the impact of north African turmoil, particularly in Egypt, which contributed €360m of revenues and €127m of profits last year. Read more
Foreign banks were among the biggest users of the US Federal Reserve’s $3,300bn emergency credit programmes in the financial crisis, according to Fed disclosures on Wednesday, the FT reports. News of the Fed’s lending to foreign banks may fuel public anger over the US government’s bail-out of Wall Street. Among more than 21,000 transactions of the Fed’s Term Auction Facility alone from 2007 to 2010, the biggest cumulative borrower was UK bank Barclays, which bought the US unit of Lehman Brothers in late 2008. Foreign banks RBS, Bank of Scotland, Société Générale, Dresdner, Bayerische Landesbank and Dexia were among the top 10 users of TAF. The No 2 user was Bank of America, which bought Merrill Lynch and borrowed a cumulative $212bn. The WSJ adds that the Fed data could influence official deliberations on raising scrutiny of US firms. FT Alphaville has more details and analysis. Read more
Have you ever heard of Inter-Alpha? We hadn’t until this weekend, although we tend not to frequent the conspiracy sites that lump it in alongside the world’s Bilderbergs, Rothschilds, and the Stonecutters.
It is a group of banks that meet together to, erm, discuss stuff, but there’s no conspiracy. The truth is that Inter-Alpha’s list of members, are much, much more intriguing than that. Read more
Société Générale on Wednesday reported a doubling of quarterly net profits, as a recovery in some of its international operations and solid high-street banking at home offset declining investment banking income, the FT reports. The bank, France’s third biggest, said net profit for the three months to the end of September was €896m ($1.26bn), compared with €426m for the same period a year ago. “Société Générale has provided further evidence of the soundness of its universal banking model,” said Frédéric Oudéa, the chief executive brought in to turn round the group’s fortunes in the wake of the financial crisis and a €5bn rogue trading scandal. But the result failed to convince investors, with the shares slipping 1 per cent in early trading to €42.10. Read more
Societe Génerale, France’s second-largest bank, said Q3 profit more than doubled after setting aside less money for bad loans, Bloomberg reports. Shares in SocGén rose after it reported that net income rose to €896m, up from €426m a year earlier. Frederic Oudea, SocGén’s chief executive who took over two years ago after a record trading loss, said in a statement today that he’s “confident” the company will meet its full-year profit target of about €6 bn in 2012 and that the lender will exceed Basel III capital requirements without having to sell new shares. Read more
Jérôme Kerviel, the rogue trader, was sentenced to three years in prison and ordered to pay €4.9bn ($6.75bn) in damages to Société Général for taking risks that could have led to the collapse of his former employer, France’s second biggest bank, the FT reports. The 33-year old sat impassively as Judge Dominique Pauthe read out the sentence in court on Tuesday. The “real farce” here, concludes FT Alphaville, is that SocGen executives can now claim vindication. Meanwhile, DealJournal examines key numbers in the Kerviel saga, while DealBook looks at how they equate with other rogue trading scandals. Read more
Dominique Pauthe, who led the three-judge panel in Paris deciding on the guilt of Jérôme Kerviel, has made his court a laughing stock by meeting prosecution demands that this country boy from Brittany “repay” the €4.9bn Société Générale lost in this comical rogue trader scandal.
Sure, no one actually expects Kerviel to come up with the cash — although given that he was enterprising enough to string together €50bn worth of unauthorised trades at SocGen without being detected, we shouldn’t rule that out. Read more
A Paris court has found the former Société Générale trader Jerome Kerviel guilty of forgery, computer abuse and a breach of trust in its judgement on his role in a 2008 trading scandal that cost the bank $7bn, Reuters reports. The court fined Kerviel almost $7bn for good measure and sentenced him to five years in prison. The court said that Socgen had not given the trader even tacit authorisation to launch speculative futures trades that imploded in early 2008, necessitating an emergency unwind operation at the bank. FT Alphaville’s full archive of Kerviel coverage can be found here. Read more
Jérôme Kerviel, who stands accused of one of the world’s biggest rogue-trading schemes, will on Tuesday learn his fate when a judge rules on the scandal that rocked France’s second-biggest bank, reports the FT. The ruling comes two years after Société Générale discovered €50bn ($69bn) in uncovered trades carried out by Kerviel, which led to a €4.9bn loss for SocGen, a €5.5bn emergency rights issue, and the resignation of Daniel Bouton, executive chairman. The public prosecutor has called for a five-year sentence for three charges of abuse of trust, forgery and computer abuse. Reuters quotes a lawyer warning that if Kerviel is absolved, it could encourage other actions against SocGen. Read more
JPMorgan Chase is in talks to acquire another part of RBS Sempra Commodities, the trading group partly owned by Royal Bank of Scotland, after the US bank bought most of the business earlier this year, reports the FT. The deal could lead JPMorgan to buy the group’s North American gas and power trading book, with another buyer taking the people and systems associated with the business. French bank Société Générale is among potential buyers of the remaining RBS Sempra infrastructre. Read more
FT Alphaville has written about the rise of Delta One and equity derivative divisions before.
But here’s further proof that banks are now increasingly setting themselves to profit from their Delta-One departments — divisions like the one Jerome Kerviel at SocGen worked for. Read more
SocGen analysts have turned their attention to the dislocation in covered bond prices vis-a-vis secured lending rates and government bonds.
Just as BarCap noted before them, they observe how “rich” covered bonds are currently trading with respect to the other markets. Read more
It’s not just the Greek banks that have been spooked by National Bank of Greece’s cash call and attendant fears of government debt restructuring.
French banks Société Générale and Credit Agricole, which have large holdings of Greek government debt and/or Greek banking businesses, are under pressure on Wednesday morning. Read more