Société Générale tried to signal investors that its exposure to PIIGS banks is “low, declining and manageable” and that it has sufficient capital to weather a Greek default when it announced new measures to dispose of assets and deleverage legacy assets, according to WSJ.New asset disposal plans will free up about $5.4 billion in capital by 2013 and include some restructuring in Corporate & Investment Banking.
From a J.P. Morgan note, here’s the nitty gritty:
– The $5.4 billion in capital relief by 2013 will come from selling in Specialised Financial Services and Global Investment Management Services including insurance. According to the note, this is not unexpected.
– A 5% reduction in spending in Corporate & Investment Banking will amount to an increase of about $340 million in pretax profits. Specifically, these cuts will come from real estate finance, aircraft and shipping finance, leverage finance, and asset based finance — all of which require funding in USD, which are currently the most expensive they’ve been since August 2010.
– Ongoing balance sheet deleveraging will help mitigate funding needs in the long term, but in the short term SocGen says it has plenty of cash. This jibes with reports that European banks have significant cash on hand in the very short term, but could see a liquidity become unavailable after that.
– SocGen says it has reduced its exposure to the PIIGS — particularly Greece and Italy — by 23% since June 11. The bank took $1.5 billion and $2 billion out of Greece and Italy, respectively.
– However, J.P. Morgan said it’s still not keen on investing in SocGen: “We view management’s strong commitment to further balance sheet deleveraging and asset disposals as a clear positive. However, we continue to be relatively cautious on European banks, and our top picks remain HSBC, DnB NOR, Swedbank and UBS.”
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