One of the many lessons from equity investing during Japan’s Lost Decade is that in a secular bear market hope is a killer. In a secular bear market hope should only be flirted with briefly during cyclical upturns, but it must be ruthlessly rejected as the cycle turns. In a secular bear market being wedded to hope destroys portfolios as the bear slashes to ribbons the hard-fought gains of the previous bull market. Gains that have taken years to accumulate are gone in months. One key measure we monitor informs us conclusively: we are now in a bear market.
The ‘key measure’ SocGen strategist Albert Edwards is referring to here is one of six models developed by his quant-ist colleague, Andrew Lapthorne. And, in chart form, it looks like this: Read more
Societe Generale are trying to tell us something about M&A here. We’re not sure what.
Sadly, FT Alphaville’s New York wing couldn’t make it to this year’s Societe Generale-run bear sighting in London — the bank’s Global Strategy conference starring Albert Edwards and Dylan Grice (who’s off to the buyside).
But we did hear that Albert had called European stocks “unambiguously cheap”. It’s a “once in a generation” buying opportunity, and so on. Is Albert, no longer a equities bear!? Read more
The famous (
implied) last words of Crocodile Edwards — a.k.a SocGen uber bear, Albert Edwards — this Thursday.
Following in the foot steps of colleague Dylan Grice’s episode of Australia bashing the other week, Edwards calls the situation plain: Read more
Or, taking the “three-year LTRO = QE” meme and running with it. Two charts via Societe Generale’s cross asset team on Monday:
France and Germany are to call for a relaxation of global bank capital rules to prevent lending to the real economy being choked off, setting them at odds with the UK’s stricter approach to banks. A joint paper by Wolfgang Schäuble, German finance minister, and his French counterpart, François Baroin, will on Monday call for important elements of the Basel III rules to be watered down to mitigate any “negative effect” on growth. A draft of the paper seen by the FT calls for special treatment for banks that own insurance companies – a particular point of friction, as tweaks backed by France and Brussels will boost the capital of Société Générale and Crédit Agricole, which both own insurance companies. The draft also looks set to open a new faultline by suggesting the deadline to publish leverage ratios – the ratio of top-quality capital to total assets – should be pushed back from 2015 to 2018. That contrasts with UK regulators who have proposed that banks disclose the ratio as soon as next year, well in advance of the Basel III timetable requirement.
Major fallers across the continent (NOT just the banking sector):
As many as 10,000 bankers at Royal Bank of Scotland face the prospect of losing their jobs, reports the FT, as the state-owned UK bank draws up detailed plans to retreat from investment banking. The job cuts – combined with an expected £1bn-2bn of restructuring costs – are the worst-case scenario in plans being considered by Stephen Hester, RBS’s chief executive, who finally accepted in November that the investment bank that has propped up the group’s profits since he arrived in the job three years ago, has outlived its usefulness. The cuts are expected to focus on RBS’s equities business and the newspaper says one person familiar with the bank’s plan said it was preparing to exit the cash equities business entirely and may also withdraw from equity derivatives, M&A advisory and shrink its structured credit and interest rates business. Société Générale also announced that it was considering cutting about 1,580 jobs at its corporate and investment bank, about 10 per cent of the unit’s total staff, reports the FT. The announcement follows a management shake-up at the bank late last month which saw the replacement of the investment bank’s former head, Michel Peretie, and is the latest in a series of job cut announcements by French banks. The job losses will include 880 voluntary departures in France, where most of the division’s employees are based, and 700 job cuts in other countries, a spokesman said.
Société Générale has announced a surprise management shake-up as the French bank accelerates asset disposals and cuts costs, says the FT. Michel Péretié, who as chief executive of SocGen’s corporate and investment banking division helped to steer it through the worst of the financial crisis, will leave France’s second-largest bank in early January. He will be replaced by Didier Valet, who is currently chief financial officer and who has been at the group for more than 10 years. Mr Péretié, who joined from Bear Stearns in 2008, has “decided to pursue other opportunities outside the bank”, SocGen said after the market closed on Wednesday. The appointments highlight the pressures that the group is under to soothe rattled investors, who have seen shares in SocGen lose more than 60 per cent of their value since January.
Société Générale has initiated legal proceedings against Associated Newspapers following a Mail on Sunday article which incorrectly claimed that the bank was on the “brink of disaster” and in “a perilous state”, the FT reports. The French bank has lodged papers with the High Court in which it claims it has suffered “substantial damage to its reputation and prejudice to its trade” following publication of the article, which appeared in the Mail on Sunday and on the Mail Online website on 7 August. The story was removed from the Mail Online and an apology was published, but the bank said it was not satisfied as the apology was not easy to find on the website and had not appeared in the newspaper. The Mail on Sunday said any claim for damages would be resisted.
Société Générale, France’s second largest bank by market cap, reported a 31 per cent slump in third-quarter net profit on Tuesday, as higher provisions against Greek sovereign bonds and testy financial conditions blighted its corporate and investment banking division, the Wall Street Journal reported. Net profit for the quarter that ended September 30 came in at €622m ($856.93m), below market expectations, as it wrote down its Greek sovereign debt exposure by 60 per cent, higher than the 50 per cent haircut outlined by the EU. The bank’s Tier 1 ratio was 9.5 per cent at the end of the third quarter. SocGen said it would not propose a dividend for 2011 in order to bloster the group’s capital position.
Breaking pre-market news on Tuesday,
- Olympus admits to covering up losses since 90′s — statement and statement. Read more
Eurozone banks selling assets in Emerging Europe – to tart up their capital ratios under crisis pressure – is not front-page news at the moment.
Frankly, we think it should be! Read more
Leading European banks say they would rather sell assets than raise expensive new capital to meet compulsory demands from the European Union for higher capital ratios, threatening a further contraction of credit to the enfeebled eurozone economy, says the FT. This radical approach, led by French banks BNP Paribas and Société Générale, would be copied by lenders across Italy, Spain and Germany, bankers said. However, the banks’ “shrinkage” strategy is likely to prove controversial with politicians and regulators if it led to bankers lending less money to customers, jeopardising the eurozone’s fragile recovery, analysts warned. Also on Wednesday EC president José Manuel Barroso gave a broad outline of a compulsory recapitalisation for Europe’s leading banks, requiring “a temporarily higher capital ratio”, with restrictions on dividends and banker bonus payments in the interim. He stopped short of specifying the target ratio, which had earlier been reported by the FT as likely to be higher than expected at core tier 1 capital of 9 per cent, citing people close to the process.
BNP Paribas and Societe Generale have denied a report that they could seek to raise a combined €11bn as part of a broader European bank recapitalisation plan, says Reuters. Le Journal du Dimanche newspaper had reported that France’s first and second largest banks by market cap would seek about €7bn and €3-4bn, respectively. A BNP spokeswoman denied the report, reiterating that it planned to reach Basel III capital targets without a capital increase. SocGen also denied the report and also said it would reach Basel III targets without a capital increase. The Journal du Dimanche report, which did not cite sources, follows one in German daily Frankfurter Allgemeine Zeitung saying that the top five French banks had agreed to receive €10 to €15bn in fresh capital from the French state as long as Deutsche Bank agreed to a government capital injection as well.
George Soros, the billionaire hedge fund manager, has lost a case at the European Court of Human Rights to have his criminal conviction for insider dealing quashed, the FT reports. The failed appeal at announced in a 4-3 decision the Strasbourg-based court is the latest twist in a nine-year battle by the 81-year-old Mr Soros to clear his name following his conviction in France in 2002. The French criminal case hinged on trades that the Hungary-born investor had executed 14 years earlier in the stock of Société Générale that reaped his hedge fund, the Quantum Fund, $2.9m in profits.
After his brief experiment with technical analysis (well, Killer Waves) uber bear Albert Edwards returns to more familiar ground in his latest Global Strategy Weekly.
Jeremy Grantham of GMO says this is “no market for young men”. Maybe now I am over 50 it is my time! Yet my forecast of the S&P bottoming at 400 is still met with utter derision. I have been underweight global equities since the end of 1996 and overweight government bonds. Meanwhile US 10y bond yields have fallen from 7% to 1¾%, a hair’s breadth from our longstanding 1½% target. Similarly, in my very humble opinion, S&P at 400 is almost inevitable.
Wouldn’t it be nice if bank stress tests were, well, stressful?
Too often they look like they’re done by him: Read more
French banks rallying on Monday:
A big market-making state bank in China’s onshore foreign exchange market has stopped foreign exchange forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe, Reuters says, citing two sources. The brief report says the European banks include French lenders Societe Generale , Credit Agricole and BNP Paribas. The Chinese bank was not identified.
Not sure what to make of this.
Über bear Albert Edwards has abandoned his empirical approach for (shock horror) the mystical world of technical analysis. Read more
To those who think inflation is not a problem SocGen’s deep-thinking strategist Dylan Grice has two charts for you:
Moody’s has cut the credit ratings of Societe Generale and Credit Agricole by one notch each and warned of a further downgrade as funding markets come under pressure, Reuters says. BNP Paribas remains on review but avoided a downgrade. Moody’s said that the revised ratings reflected exposure to Greek sovereign risk. FT Alphaville has a round-up of the downgrade texts. BNP Paribas has also unveiled a round of asset sales as it seeks to calm funding fears, the WSJ reports. The bank said it had removed $22bn of dollar funding needs in the first half of 2011, and plans to divest another $60bn by 2012.
Moody’s downgraded long-term debt of Société Générale and Crédit Agricole, while keeping BNP Paribas on review; SocGen and Credit Agricole are also remaining on review over long-term funding.
The top lines from each statement follow. Read more
Some more ‘Hard Facts‘ from the French banking sector.
Tuesday’s early price action in SocGen and BNP Paribas. 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
Where BNP Paribas goes, Societe Generale follows.
In an extraordinary release, the embattled French bank has given the market some ‘Hard Facts‘ to chew over on Monday morning. Read more
Breaking pre-market news on Monday,
- Societe Generale announces plans to free €4bn of capital by 2013 through disposals — statement. Read more