A first look at France's draft bank reform in detail

Following on from our Nov. 15 scoop, Reuters was the first international media to get hold of the draft law

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By Lionel Laurent and Matthias Blamont

PARIS, Nov 28 (Reuters) - A soon-to-be-finalised French banking reform law will have a wider-than-expected scope as Francois Hollande's administration seeks to rein in several related sectors, according to a draft seen by Reuters.

Extra powers will be given to France's banking and capital-markets regulators to keep banks, brokerages, insurers and consumer-credit providers in line and to protect taxpayers from the cost of bailing out failed institutions, the document said.

It marks a flagship attempt by the administration of President Hollande to deliver on a campaign pledge to shake up the financial sector by separating speculative banking businesses from those deemed useful to the economy.

The reform holds back from curbing banks' market-making activities, as previously reported by Reuters, putting France at odds with tough proposals by the EU's Liikanen Commission for a broader ring-fencing of trading activities.

"The option chosen by the French government is to not entirely separate activities," said a source close to the situation. "France wants to pave the way in Europe."

The centrepiece of the reform demands banks like BNP Paribas and Societe Generale put their proprietary trading activities and financing for certain types of hedge funds and private equity into separately regulated entities, according to the draft law due to be unveiled in December.

These entities will be banned from high-frequency or commodity-derivatives trading. Client-related activities like market-making, hedging and other investment services will be spared, as will banks' own investment and cash-management operations, keeping them with the parent group.

Split up French banks? Not gonna happen under President Hollande, our sources say

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By Lionel Laurent and Matthias Blamont

PARIS | Thu Nov 15, 2012 2:02am EST
 

(Reuters) - France is expected to reject tough rules proposed by Europe to curb the riskier activities of banks, after months of lobbying by the industry.

The draft rules to be unveiled next month will focus on banks' proprietary, high-frequency and algorithmic trading, sparing market-making - the buying and selling of securities on behalf of clients, according to two sources briefed on the government's position.

"Market-making is not being considered as a risky or speculative activity," one of the sources said.

French President Francois Hollande is therefore steering towards rejecting a call by the European Union's Liikanen Commission last month for most market-making and trading activities to be ring-fenced from mainstream business.

Banks like BNP Paribas and Societe Generale have been lobbying against any restrictions that could give foreign rivals such as those in the U.S. an advantage. Talks between banks and government officials ended this week.

Banks are concerned that the rules will add costs and complexity at a time when the industry is only just recovering from a year-long drive to restore investor confidence by selling assets and cutting staff.

"We are convinced that (market-making) is something which is a solid economic client-related activity...In our mind, what is speculative is very limited," BNP Chief Financial Officer Lars Machenil told analysts earlier this month.

Don't expect "miracles" in the eurozone next year, SocGen CEO tells us

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PARIS, Nov 8 (Reuters) - Societe Generale expects economic growth to be sluggish in 2013, making it difficult to give accurate forecasts for next year, the French bank's chief executive told Reuters Insider television.

"Economic growth should remain sluggish overall (in 2013), with a key uncertainty in the U.S. - the fiscal cliff - in the beginning of the year," Frederic Oudea said in an interview.

"In the euro zone, we can't expect miracles."

French retail banks are set for a wake-up call - it's time to close branches and cut costs

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By Lionel Laurent and Matthias Blamont

PARIS, Nov 1 (Reuters) - French banks' nationwide networks of branches are coming under scrutiny as ripe for cost cuts, ahead of the lenders' quarterly results due next week.

Investors will also be looking closely at fixed-income revenues from investment banking and whether any of the big French lenders will try to grab market share from Swiss rival UBS's worldwide retreat from this business.

French retail banks have packed a powerful profits punch over the past two years - buoyed by fee income on savings products, a boom in mortgage lending and archaic interbank levies.

But a slowing economy, tougher regulations and low interest rates have slowed or even halted revenue growth, putting pressure on banks to cut costs in a bid to boost profit.

This is a Europe-wide trend but one that matters especially for heavyweight French banks like BNP, Societe Generale and Credit Agricole, which have relied on their domestic retail business to offset the impact of roller-coaster financial markets on their investment banks.

French retail banking accounted for 17 percent of BNP's total revenue, 32 percent of SocGen's and half of Credit Agricole's in the second quarter.

"The outlook for revenue growth is looking a lot tougher these days," one French retail-bank executive said. "I don't know how revenues will grow given the crisis, incoming Basel III regulations, falling fee income and falling interest rates."

Another put it more bluntly: "Our fee income is dropping all the time. Every time we think it can't fall any further, it does," he said. "We're going to have to cut costs."

The Libor inquiry isn't over

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By Lionel Laurent and Matthias Blamont

PARIS, Oct 26 (Reuters) - Societe Generale, France's second-biggest listed bank, has received a new request for information from U.S. authorities investigating the Libor rate-fixing scandal, a banking source told Reuters on Friday.

SocGen has already said publicly it is cooperating with probes into whether banks manipulated the Libor rate - the benchmark for $300 trillion of contracts and loans across the world - and is conducting its own internal inquiry.

"The request is not a subpoena to appear in a court but a request for more information from U.S. regulators," the source said.

SocGen declined to comment. Chief Executive Frederic Oudea reiterated last month that the bank had not received any allegation or charge linked to the probe.

Second time unlucky for the most indebted trader in the world

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By Lionel Laurent and Thierry Lévêque

PARIS, Oct 24 (Reuters) - Former Societe Generale trader Jerome Kerviel lost his appeal on Wednesday against a three-year prison sentence for his role in France's biggest rogue-trading scandal.

A Paris appeals court ruled that the 35-year-old ex-trader, who had fought to overturn a 2010 conviction for taking huge, risky bets that cost SocGen 4.9 billion euros ($6.35 billion), was responsible

It said he must also repay the bank the billions lost, potentially a life-time claim on part of his earnings.

"Jerome Kerviel was the sole creator, inventor and user of a fraudulent system that caused these damages to Societe Generale," the court said in its ruling.

A nervous-looking Kerviel, who chewed his nails as he heard the verdict, was not forced to go to jail immediately. A separate judge will decide the precise terms of his sentence and how many hours he spends behind bars every day - a process that lawyers say could take weeks.

In all, Kerviel's sentence is for five years in jail, two of which are suspended.

The ruling is a victory for SocGen, which has spent years trying to shake off the scandal after it hit headlines around the world at the dawn of the 2008 financial crisis.

It also comes as the financial industry battles lawsuits over crisis-era behaviour and public perception it is too risky.

Kerviel's lawyer, David Koubbi, said he was examining the possibility of calling on France's highest court of appeal, the Cour de Cassation, to rule on the legality of the rulings.

"We had given ourselves the goal of defending Mr. Kerviel against an absolutely appalling injustice. I can tell you that we've failed," Koubbi told journalists outside the court.

Kerviel's chances of walking free aren't looking good

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By Lionel Laurent

PARIS, Oct 22 (Reuters) - Jerome Kerviel, the man behind France's biggest rogue-trading scandal, finds out this week whether he is heading to prison or walking free after his last court appeal in a four-year battle against former employer Societe Generale.

Former trader Kerviel submitted a final attempt in June to be acquitted and avoid a three-year jail sentence handed down in 2010 for his role in taking huge, risky bets that cost SocGen 4.9 billion euros ($6.4 billion) to unwind and slammed the French bank's reputation.

Wednesday's verdict, barring unexpected legal challenges, will be the final say on a case during which Kerviel, who has kept an impassive front throughout, built a cult following.

While Kerviel has never denied masking the 50 billion euro positions that made headlines around the world as the financial crisis unfolded in early 2008, he has always said his bosses knew what he was doing - which SocGen denies.

The outcome will be closely watched by a financial industry facing other lawsuits over crisis-era behaviour. A similar trial is unfolding in London over the role of trader Kweku Adoboli in a $2.3 billion loss at UBS.

"These appear to be spectacular cases by virtue of the size of the risks taken by these traders and the danger that they put their banks in," said Emmanuel Moyne, a litigation lawyer at Linklaters in Paris.

"But if you compare it to cases where the amounts involved were much smaller, it is no different to people who simply cheated an internal controls system."