Frédéric Oudéa has been all over the French press this week defending the credibility of Société Générale. But the head of France’s second-largest listed bank looks a bit like the last man on the beach standing in the way of a tsunami.
In a Sunday newspaper interview, he stressed SocGen had no liquidity problems and its business was healthy. Yet he also acknowledged that uncertainty and volatility in European banking stocks would continue until third-quarter earnings are published at the end of October and the beginning of November.
This still did not explain the hammering SocGen shares have suffered, losing almost 40 per cent of their value in the last month alone. Indeed, the French financial market watchdog has opened an investigation into baseless market rumours about SocGen that had accelerated the fall in its shares.
Mr Oudéa also this week signed a liquidity contract with Rothschild & Cie, setting aside €170m ($245m) to buy and sell its shares in the market to prevent sharp swings in price.
This type of contract is quite common in France. But it is hard to see what €170m can do to stem the loss of confidence in SocGen when the real problem is the broader loss of confidence in Europe’s banking and financial system. Just like chief executives buying more of their company shares, such liquidity arrangements are little more than gestures given that the floor is not related to the fundamentals of an individual financial institution but to the fundamentals of European leadership, or rather lack of it.
According to the Fitch rating agency, in June and July the 10 largest US-based money market funds took back 18.4 per cent, or $70bn, of the money they had lent to European banks. And the problem for Mr Oudéa and other European bankers is that it makes no difference whether you are running a sound or weak bank because the market is not interested in making distinctions. The share price of European banks is no longer linked to their own stories but to the fate of the European financial system of which banks are supposed to be the bedrock.
Mr Oudéa is the first to admit this, saying that all banks are now victims of the recent lowering of economic growth expectations in the US and Europe and of growing worries over the eurozone debt crisis. “Markets are also waiting for political decisions that are taking time. We have to be patient,” he told Le Journal du Dimanche.
The eurozone’s tortuous decision-making process could well test Mr Oudéa’s patience. But there may be some temporary relief in sight. French banking shares increased sharply on Wednesday after Crédit Agricole, the country’s largest retail bank, reported first-half results that were better than expected in spite of its heavy exposure to Greece, Italy and Spain. For the past few weeks, the French farmers’ bank was at the heart of market rumours that it too faced liquidity problems and had been the unnamed institution that had tapped the European Central Bank’s dollar funding facility this summer.
“It was certainly not us,” a senior executive of the bank said on Wednesday. Jean-Paul Chifflet, the bank’s chief executive, acknowledged that there was a lot of volatility and nervousness and a lot of irrationality “linked to perceptions of catastrophic situations”. Like SocGen, Credit Agricole shares have also been battered of late. They have lost 42 per cent of their value in the last three months despite Wednesday’s gain of almost 8 per cent. But if anything, Crédit Agricole’s news should reassure the markets given that the bank claims it has access to almost €120bn of instant liquidity.
SocGen, and indeed BNP Paribas – France’s biggest bank and long regarded as the eurozone’s strongest – would be wise to be as transparent as Crédit Agricole in setting out the details of their funding firepower. Indeed, the relief on Thursday from Crédit Agricole’s announcement buoyed both SocGen and BNP Paribas shares but, as we have seen in recent weeks, confidence can be snuffed out in hours. SocGen and BNP Paribas could wait until their third-quarter results in late October. But in the current circumstances, it might be advisable to be proactive and disclose their positions ahead of time.
And the real question that shook markets in the last couple of weeks has still not been answered. Just which bank tapped Europe’s emergency fund? Some bankers have even suggested it was not a eurozone bank but perhaps an arm of a Swiss bank. Should that prove to be the case, French bankers, and for that matter eurozone counterparts, would be foolish to think this lets them off the hook.
As we have seen in recent weeks, when markets take fright it almost becomes a game of dominoes – and when one tumbles the rest can follow in quick succession.
Paul Betts is the FT’s senior correspondent in Paris
Get alerts on European banks when a new story is published