Societe Generale confident won't need government funds

13th October 2011, Comments 0 comments

The head of French bank Societe Generale expressed confidence Thursday it won't need a mooted injection of public funds into banks weakened by exposure to eurozone debt.

Following increased concerns that Europe's banks could be dragged down if investors are forced to accept larger losses on Greek debt, European authorities are to review again lenders' balance sheets.

The European Commission proposed Thursday barring weak banks from distributing profits to investors and to take public funds to strengthen their capital base.

Societe Generale chief executive Frederic Oudea said banks would have at least half a year to meet any higher capital ratio imposed, and that his bank had already raised its considerably.

"I have confidence that Societe Generale will meet the objective without needing public funds," he said at an event in the northern French city of Lille.

He said French banks would likely retain earnings to increase their capital, but not seek fresh funds from investors.

"We are, and this is true for all French banks, going to go on a little diet" in order to adjust their business models to the changed market circumstances," said Oudea.

This would mean a reduction of activities financed in dollars and selling off assets.

With their share prices hammered over the past few months, tapping the markets is an unattractive prospect for French banks.

Asset sales will also increase capital ratios.

Oudea said Societe Generale had already raised its capital ratio to 9.3 percent, according to the international standards currently in force, and that it had relatively little exposure to dangerous debt.

He said Societe Generale's exposure to debt from five eurozone countries considered to have the most fragile debt (Greece, Ireland, Portugal, Spain and Italy) totals 4.3 billion euros compared to its capitalisation of 41 billion euros.

The Societe Generale chief said French banks can easily absorb Greek losses and that the Greek crisis needed to be resolved quickly to restore confidence.

"The problem is that this has dragged on for 15 months and for investors it is the best symbol that Europe doesn't know how to resolve issues quickly while now there are other big issues," said Oudea.

Forced capitalisation of banks isn't the solution, he added.

"Adding several billion euros to the balance sheet of this or that bank that one will restore confidence in Italy," said Oudea, who dismissed worries that Italy isn't able to sustain its debt level.

© 2011 AFP

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