SocGen Takes $2bn Hit on US Mortgage Asset Losses
French investment bank Societe Generale (SocGen) said it will take a €1.4bn (US $2.03bn) hit from losses sustained on its Stateside mortgage assets. After marking down the value of its mortgage assets due to increased losses on prime and subprime mortgages, SocGen still expects to make a “slight profit” in Q409, the bank said in a pre-earnings announcement Wednesday. Among the losses, SocGen marked down the valuation of credit-default swaps by €100m. Despite the mortgage business losses, SocGen said its private and retail banking performed well and will experience a capital gain of approximately €600m as a result of its asset management subsidiary’s merger with Credit Agricole. SocGen said its expects decreased earnings from its corporate and investment banking operations, including its fixed-income business as a result of decreased investor activity and unfavorable market conditions. However, the bank said it is in a favorable position to go into 2010 “with confidence.” It’s just the latest storm the nearly 146-year-old bank has weathered in recent years. In 2007, SocGen was forced to wind down its $103.5m investment in the Premier Asset Collateralized Entity (PACE), which at the time was its only structured investment vehicle (SIV). PACE was primarily comprised of asset-backed securities, including collateralized debt obligations (CDOs), which accounted for 19% of the portfolio, 18% monoline insured securities, 12% residential mortgage-backed securities (RMBS), and 26% of other miscellaneous ABS, including student loans, commercial MBS, credit cards and auto loans. When SocGen announced the decision, its initial $103.5m initial investment was marked down to $27.6m. Then there was the case of SocGen’s so-called “rogue trader” Jerome Kerviel, who through fraud and trading practices that exceeded SocGen’s risk thresholds, is alleged to have exposed the bank to losses totaling nearly €5bn. When Kerviel’s actions were first discovered, SocGen had its stock suspended on the French stock exchange. Before the Bernard Madoff scandal, Kerviel’s actions were widely considered to be the largest bank fraud in history. The bank since made, and continues to make, several large and sweeping changes internally. Write to Austin Kilgore.