INSIGHT: Behind French Bank Drama, A Relaxed Regulator?

By Lionel Laurent

(Reuters) - On a sunny morning in mid-June, France's chief bank regulator Christian Noyer seemed upbeat as he told reporters gathered at the Bank of France there were no risks facing its banks.

Profits were on the up and affordable funding was more or less the norm. Although some analysts had said banks like Societe Generale and Credit Agricole might eventually need to raise capital to meet tougher rules under the post-crisis Basel III regime, Noyer backed the view of bankers that setting aside a stream of steady future profits would be enough.

Three months on, the picture has changed dramatically.

Shares in SocGen, Credit Agricole and larger rival BNP Paribas are trading at crippled valuations after a summertime sell-off halved their share prices to levels not seen since 2009, wiping nearly 60 billion euros ($82 billion) off their market value.

With the biggest overall exposure to Greece's debt-wracked economy, according to the Bank for International Settlements, French banks are viewed as particularly vulnerable to any deterioration of the euro zone crisis.

It is not just their shares that are suffering. Ratings agency Moody's has downgraded French banks' credit rating and signaled there may be more to come.

Some analysts who have picked apart the business model of the French banks say they are viewed as more risky because of their dependence on short-term wholesale funding, their big balance sheets and their leverage.

These are all things the regulator could have -- and should have -- detected, they say.

"The French regulator has taken its eye off the ball in terms of making the banks robust enough," said Andrew Lim, an analyst at Portuguese bank Espirito Santo. "They haven't forced their banks to raise capital the same way some other countries have.

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SocGen plays down takeover talk, says to sue Daily Mail -memo

By Lionel Laurent

(Reuters) - A takeover of Societe Generale (SOGN.PA) is not a solution to current woes nor is it at risk of taking place, the French bank told employees in an internal memo sent on Friday.

"A takeover, today, is neither a solution nor at risk : all banks have seen their share prices drop," the memo obtained by Reuters said. "The level of instability in the environment and the banking system means that all banks are faced with the same problem. It is not a solution to the current problem, regardless of the players."

The memo also said legal action against newspaper Daily Mail was pending after the Mail on Sunday published a story in August saying SocGen was close to collapse. The newspaper subsequently issued a public apology after SocGen denied the story.

"Legal action against the Daily Mail is pending and similarly legal action will be taken against anybody who spreads unfounded rumours about our company," the memo said.

French Banks Braced For Credit-Rating Downgrade -Sources

By Lionel Laurent

PARIS, Sept 10 (Reuters) - France's top banks are bracing themselves for a likely credit rating downgrade from Moody's, sources close to the situation said on Saturday, further complicating their efforts to assure investors they are riding out the tensions in funding markets.

Several sources said on Saturday that BNP Paribas , Societe Generale and Credit Agricole were expecting an "imminent" decision from the ratings agency, which first put them under review for possible downgrade on June 15.

Moody's at the time had cited French banks' exposure to Greece's debt-stricken economy as the reason behind the review, which was due to last three months. Outside commentators said the ratings were ripe for a downgrade because of rising borrowing costs in the face of sovereign debt turmoil.

"The decision is imminent," one Paris-based source said. "It will probably be a downgrade but it's not certain yet."

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SocGen Cutting Staff, Unions Worried -Sources

By Sophie Sassard and Lionel Laurent

LONDON/PARIS, Sept 8 (Reuters) - French lender Societe Generale has started to cut staff as it adjusts its business to the worsening outlook for investment banking and the dire impact of Europe's debt crisis, employees and union sources say.

The cuts -- mainly in SocGen's corporate and investment bank (CIB) in the Paris region, where half of its staff is located -- have so far been more of a trickle than a wave, but unions say they are on alert for more to come.

"The lay-offs have already begun in CIB," said one employee. "One guy came back from vacation to find a cheque waiting for him...He was told that if he wanted to take it to an employment tribunal it would be long and arduous."

If this anecdotal evidence is accurate, the bank may be avoiding the need for a costly and tightly-regulated redundancy exercise, Paris-based lawyer Mabrouk Sassi said.

"In France there are clear rules when it comes to firing people," he said. "Rather than go into a complex layoff programme that may not be permissible in the current environment, it is possible that there might be a concerted effort by management to reduce staff levels."

A spokeswoman for SocGen said: "At the moment we are stabilising our staffing levels because of the worsening market environment." She added that the bank had not put into place any overall plan to reduce staff.

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SocGen CEO Oudea Struggles To Banish Kerviel Demons

By Lionel Laurent

(Reuters) - Societe Generale boss Frederic Oudea is having to work harder to keep his promise of a new dawn after the bank's devastating trading scandal in 2008.

The company veteran -- still only 48 years old -- has seen the value of France's number-two bank slump by almost 50 percent since the end of June. Market concerns whether SocGen had sufficient access to dollar funding are compounding existing fears the bank had adequately buried the Jerome Kerviel legacy.

"This is what happens when you have an event as ridiculous as Kerviel," said a London-based bank analyst. "A lot of fund managers would first sell SocGen before (French rival) BNP Paribas BNP.PA or others, because of management."

Kerviel's rogue bets, that cost the bank a stunning 4.9 billion euros ($6.90 billion), continue to undermine Oudea's assurances SocGen is now heading toward a risk-free future of smooth results and strong capital.

Liquidity concerns have pummeled bank shares in Europe across the board -- the STOXX 600 Europe banks index .SX7P is down 27 percent since the end of June -- but SocGen was hit hardest among French peers.

Its real problem is a business model too skewed toward investment banking, an international retail franchise that is not yet bearing fruit and lingering worries over capital, investors say.

"The problem with Societe Generale is that it lacks a firm pedestal," said Yohan Salleron, a fund manager at Mandarine Gestion with 1.1 billion euros under management, who closed out his position in SocGen in July.

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Europe Seeks To Get Banks On Board Greek Bail-out

By Gernot Heller and Lionel Laurent

(Reuters) - European governments are trying to persuade banks and insurers to share the pain of a second Greek bailout package, in an attempt to avoid market meltdown while keeping taxpayers happy.

Talks between governments and creditors will begin across the euro zone on Wednesday, a source in the German government said. The European Union bloc agreed last week that any such participation could only be voluntary.

"The (German) finance ministry has invited banks and insurers for talks on a working group level in Frankfurt," the source said, adding that all relevant banks and insurers in Germany that could contribute would take part.

Separately, the French insurers' association FFSA said its head Bernard Spitz had been summoned to the finance ministry on Wednesday to discuss the Greek debt situation.

"Yes, he is there right now," a spokesman said.

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Carrefour Names New France Head As Woes Build

By Lionel Laurent

Carrefour , the world's second-biggest retailer, shifted its European head to oversee its struggling French division, the latest in a series of moves to bolster investor confidence in its recovery plan.

Carrefour, which is to face investors at an annual meeting on Tuesday, said in a statement that company veteran Noel Prioux -- who had been put in charge of broader European operations just a month before -- would now take charge of France.

Carrefour also named Thomas Huebner, a Swiss national who has worked at McDonald's and also headed a handful of startup supply companies, as new head of European operations.

The retailer has underperformed in its key home market of France, Europe's second-largest economy, and said it now sees first-half results there lagging the expectations of its own executive board.

Chief Executive Lars Olofsson had taken charge of the retailer's home market after firing previous France chief James McCann. France accounts for 40 percent of group sales and is under pressure as rivals keep prices low to gain market share.

"It sort of smacks of desperation," a London-based analyst said. "Why did they appoint him to Europe and suddenly appoint him to France?"

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