French investment bank Société Générale expects to post a “slightly positive” net income for Q209, despite a €1.3bn (US$1.81bn) charge related to credit default swaps used to hedge the company’s loan portfolio. “Solid operational performances, in particular in Corporate & Investment Banking, will absorb the significant negative impact on the accounts of the substantial tightening of credit spreads stemming from an improving market environment and reduced aversion to risk since mid-March,” company officials say in a corporate release. The company in a statement today says the cost of risk is expected to remain relatively level with that seen in Q109, while the impact of assets at risk should be limited. SocGen will publish the detailed quarterly results on August 5. Until then, the company says it plans to continue to reduce its exposures. News of the expected profit is significant in light of the pain felt in the European financial market trailing the downturn in US mortgage performance. SocGen in late ’07 bailed out its only structured investment vehicle (SIV), Premier Asset Collateralized Entity (PACE), by providing a $4.3bn credit line. PACE had run into some capital issues over US mortgage-related woes. Home loans including subprime mortgages, for example, comprised as much as 12% of PACE’s holdings. Investors quickly lost appetite for these kinds of SIVs after suffering exposure to toxic US mortgages. SocGen’s turn in the subprime spotlight came after a ratings agency said PACE was on the verge of falling into the hands of a trustee due to a capital emergency. SocGen said in December 2007 it would take on the equivalent of $4.3bn in assets from PACE, effectively quieting the public scrutiny of the SIV. Write to Diana Golobay.
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