Sarkozy….walking on hot coals

Next Greek bailout conditions eased by Brussels as France panics

There is a very real fear in Parisian banking circles that Societe Generale will be a takeover victim if its current share-price plunge continues. And The Slog understands that a name in the frame as the predator is JP Morgan Chase. The market value of Societe Generale, France’s third- largest bank by assets, is now about $18.3 billion – 25% less than it was a month ago. In contrast, New York-based JPMorgan Chase & Co. is valued at $126.7 billion. In an obvious attempt to prop up the French banking system, the ECB has lent $575M over the last few days.

Referring to the SocGen crisis, Jean-Pierre Balligand, a Socialist Deputy in the National Assembly, is quoted today as saying, “This would be taking advantage of the euro crisis and that’s not good for France.” But then, picking the best bits off a carcass has always been one of Morgan the Pirate’s specialisms – pacethe investment book at Northern Rock. The EU’s Central Bank (ECB) said two bidders had taken advantage of the weekly offer of dollar liquidity it operates with the US Federal Reserve – without naming the banks involved. But I understand they are Societe Generale and Credit Agricole.

The question would remain – for any bank shark watching for signs of distress in the deep waters of the eurozone – ‘never mind the nice bits…how nasty are the awful bits?’

This applies both to SocGen and Credit Agricole….but more so to the latter. As the Slog posted a few days back, it’s always the hidden bits the stress-test didn’t pick up that make for a surprise collapse. Both these banks have Greek operations where worms may well be in hibernation right now. But equally, both are such sprawling monsters, far more than just a brand name will be obliterated if they go down.

For instance, SocGen’s exposure to Greek toxicity is 1.7bn euros, but that sum trebles if you include the liabilities of its subsidiary, Geniki Bank. Geniki’s losses in turn more than trebled last year – it lost 411 million euros in 2010, compared with a loss of 109.5 million in 2009. “A significant deterioration of the economic environment affected the quality of our loan portfolio,” the bank said. I’d imagine the tongue in the cheek syntax gave some apparatchik somewhere a frisson of pleasure as he wrote it.

But I wonder how many people know that, in the light of this disaster, last November Societe Generale’s holding in Geniki rose to 88% from 54%, because a 340million euro cash injection was required  to recapitalise the already ailing bank. And I wonder how many grubby little subsidiaries of Geniki there are which didn’t show up in the due diligence.

After all, just look at the reach of Emporiki, the Greek bank controlled since 2006 by SocGen’s competitor Credit Agricole. Emporiki has, literally, hundreds of subsidiaries in Cyprus. Nobody seems to know a whole lot about those….although I can tell you from cast-iron sources that every single Cypriot bank will be knocked over by the EU crisis. Emporiki also has a branch in London that manages a ‘financing subsidiary’. I bet it’d be interesting to know how that little operation is doing. But the bank also has 370 branches across Greece. So its collapse will be a nightmare for ordinary Greeks. This bank has ‘assets’ (and we all know what that can mean when it comes to banking accountancy) of €26.4 billion. That’s six times the size of Geniki…and might well explain why Morgan is mulling SocGen as opposed to CredAgric.

Credit Agricole itself is enormous; but staring into the potential abyss of its enormity is terrifying – especially if, like me, you bank with them.

CA is the eighth largest banking group in the world (by Tier 1 Capital). But get this: it is majority owned by 39 local French banks which are mutualised. It owns Credit Lyonnais. And it owns the magazine publishing  group Uni-editions. This begins to tell us just how far-reaching the tentacles of one bank failure would be….and we haven’t even scratched the surface of how many vital French farming businesses might suddenly find the liquidator foreclosing on them. This represents only a tiny fraction of the painful reality behind headlines about banking collapse.