(Updates with analyst comment in third paragraph.)
Sept. 12 (Bloomberg) -- Societe Generale SA, France’s third-largest bank by assets, plans to free up 4 billion euros ($5.4 billion) in capital through disposals by 2013 to reassure investors about its finances.
The lender’s exposure to Greek bonds is about 900 million euros and it has “no significant” holdings of Irish or Portuguese debt, the Paris-based bank said today in a statement. Societe Generale aims to cut the cost base of its investment bank by 5 percent and have a core Tier 1 capital ratio “well above” 9 percent by 2013 with no capital increase. The company is also shedding jobs at retail networks in Russia, Romania, the Czech Republic and Egypt, it said.
“This is going in the right direction but it’s also a proof of difficulties,” said Christophe Nijdam, an analyst at AlphaValue in Paris who has a “buy” rating on the stock.
Societe Generale fell as much as 13 percent to 15.22 euros and was trading down 8.1 percent at 16.03 euros by 1:22 p.m. in Paris trading, giving it a market value of 12.4 billion euros. The shares have lost about 60 percent of their value this year.
Disposals “will come mostly from asset management and financial services,” Chief Executive Officer Frederic Oudea told reporters today on a conference call. “August marked a real rupture. The direction of change is the same, but the rhythm must be accelerated.”
The bank, along with French rivals BNP Paribas SA and Credit Agricole SA, may have their credit ratings cut by Moody’s Investors Service this week because of their investments in Greece, two people with knowledge of the matter said. Moody’s placed the three banks’ ratings on review in June.
“The French banks have no capital problem,” said Oudea, who is also the rotating head of the French Banking Federation. There are no talks between the government and French banks about any recapitalization, he said.
Bank of France Governor Christian Noyer said today that French lenders are capable of facing any Greek response to sovereign-debt difficulties and have no liquidity or solvency problems.
Greece “is not an issue” for Societe Generale as the bank reduced its net exposure to the country’s government debt, Oudea said. A hypothetical writedown of as much as 50 percent would lead to net losses of between 100 million euros and 150 million euros for the bank, the CEO said.
Overall, Societe Generale has “low, declining and manageable sovereign exposure” of 4.3 billion euros to Italy, Spain, Portugal, Ireland and Greece, the bank said.
The lender is planning to cut its corporate- and investment-banking balance sheet by scaling down businesses “adversely affected by the regulation or with low cross-selling potential,” the bank said.
Within its corporate- and investment-banking division, Societe Generale may trim businesses such as aircraft finance, shipping, leveraged finance and commercial real-estate financing in the U.S., Oudea said, declining to give further details.
Societe Generale said disposals of risky assets, including asset-backed securities, will continue at a “high pace.” The company has made 3.5 billion euros of disposals of risky assets in the third quarter, more than the amount in the first and second quarters combined, according to the bank’s website.
The lender had 24.3 billion euros of risky assets as of Sept. 7.
Societe Generale has completed its 2011 long-term funding program, it said. Cutting risky assets, using swaps between the euro and U.S. dollar in the interbank market and reducing its short-term market activities are among measures that have helped the company lower its reliance on unsecured U.S. dollar short- term funding, the bank said.
“The masses at play are modest on the scale of SocGen’s balance sheet,” Oudea said, referring to short-term funding in U.S. dollars. “We’ll avoid this becoming a significant topic.”
Societe Generale will slash 2,000 jobs at its Russian retail-banking business in 2012 and also plans to reduce staff in the Czech Republic, Romania and Egypt, Oudea said, without providing more details.
--Editors: Stephen Taylor, Dylan Griffiths
To contact the reporters on this story: Mark Deen in London at email@example.com; Fabio Benedetti-Valentini in Paris at firstname.lastname@example.org
To contact the editor responsible for this story: Frank Connelly at email@example.com