Société Générale to sell assets worth 4 billion Euros to consolidate its capital

• The French group wants to reduce its number of employees in Romania, Russia, Czech Republic and Egypt

• Sorin Popa, BRD: "We have no plans for downsizing, we will optimize through natural departures"

Société Générale announced yesterday that it would cut costs and sell assets worth 4 billion Euros, by 2013, to bolster its capital and to reassure investors over its financial situation.

The lender wants to cut costs with the investment banking division by 5% and to reach a capital adequacy rate of more than 9% by 2013. Also, the bank will spin off part of its asset management and financial services divisions.

Furthermore, Société Générale intends to cut the number of employees in Romania, Russia, Czech Republic and Egypt, as part of a process to consolidate the capital of the group, Frederic Oudea, the managing director of the bank said yesterday, quoted by Bloomberg.

Next year, Société Générale will cut 2,000 jobs at its Russian retail-banking business in 2012 and also plans to reduce staff in the Czech Republic, Romania and Egypt, Frederic Oudea said.

"The layoffs will happen in particular in the financial services and asset management sectors", he added.

BRD, the Romanian subsidiary of Société Générale, did not perform any layoffs and has no plan to cut staff, as the optimization of labor costs will come from natural departures, said Sorin Popa, deputy general manager of the bank, quoted by Mediafax.

He said: "Since the beginning of the year, we only saw natural employee departures and nothing more. We did not operate layoffs and we are not in a downsizing process. We are looking for a way to cut employee costs, but based on natural departures, not through a layoff plan".

The deputy general manager of BRD also said that natural departures are constant, a normal evolution on the market of Bucharest and Romania, and the bank has made the decision not to replace employees unless necessary.

Sorin Popa said: "We do not want to cut staff through layoffs. The only optimization will be made through unforced layoffs".

This week, financial ratings agency "Moody"s" may cut the ratings of French banks Société Générale, BNP Paribas and Credit Agricole, due to their exposure to Greece, sources close to the situation said, according to Mediafax. Since back in June, "Moody"s" placed the ratings of BNP Paribas, Société Générale and Credit Agricole on watch, for a potential downgrade.

Société Générale has an exposure of about 900 million Euros to Greece and has no "significant" investments in debt of Portugal and Ireland, according to a press release of the group.

Yesterday, the shares of the bank fell by as much as 13%, and its market value reached 12.4 billion Euros. Since the beginning of the year, the price has dropped about 60%.

• Baltazar: The sale of the assets by Société Générale is not a panic sale

Economic analyst Bogdan Baltazar considers that the announcement by Société Générale, concerning the sale of assets, is not an unusual one.

"It is a common move in the banking system, it is not a panic sale", he said.

Bogdan Baltazar added that banks spin off underperforming assets or use their own capital to buy assets when needed.

As for the drop of the bank"s stock, he said that it is nothing more than a normal fluctuation.

The downward drop of the shares of Société Générale was mimicked by the shares of its local subsidiary, BRD. Since the beginning of the year, the shares of BRD have fallen 11.82%, whereas in August they lost 20.77%.

• Liviu Avram: BRD has no exposure to Greece, like its parent bank does

Liviu Avram, the head of the sales department of "NBG Securities", said that the evolution of the shares of BRD is in line with what is happening with the shares of TLV (ed. note: Banca Transilvania). Furthermore, the shares of Romanian banks performed better than those of foreign banks, he said. Nevertheless, the negative mood on the international markets and the turbulences in the Eurozone have affected the local market, added Liviu Avram.

As for the potential impact that "Moody"s" decision on the rating of French banks, could have on the shares of Société Générale, he considers that the market has already anticipated this decision, which explains why the shares have dropped. Thus, the effect of a potential downgrade would not be as severe as it could have been one month ago.

Liviu Avram also said that the evolution of the shares of BRD needs to be looked at separately from the evolution of the shares of Société Générale.

"The Romanian branch, BRD has no exposure to Greece, like the parent bank does", he said.

Also, it is hard to say whether the shares of BRD will rise, as long as the stocks of foreign banks are dropping.

"The markets are uncertain and they react violently to what is happening on the foreign markets", according to Liviu Avram.

• Nicu Grigoraş: It is very unlikely that Société Générale would sell assets of BRD

Nicu Grigoraş, broker with "Intercapital Invest", said that the initial evolution of the shares of BRD, tracks the general evolution of the main indexes rather closely. This evolution is determined by the recent European troubles and is does not exit the usual patterns, he said.

Concerning the announcement made by Société Générale, considering the 4 billion Euros asset sale, Nicu Grigoraş considers that given the recent financial statements, BRD is a rather important asset for the parent bank, which makes it very unlikely that it would be spun off.

In the beginning of September, Société Générale bought 200 BRD shares, at an average price of 12 lei/share, according to the reports published on the website of the BSE.

In Q1 2011, BRD had a net profit of 282 million lei, down 23% YOY. Net banking revenue fell more than 8.6%, to 1.6 billion lei in the first six months of this year, compared to the similar period of 2010. Also, gross operating profit fell approximately 14%, to 914 million lei.

Customer loans amounted to 33.3 billion lei, of which loans to individuals amounted to about 16 billion lei, and loans to companies amounted to 17.3 billion lei, amid low borrowing.

The total volume of customer deposits fell 4.9% to over 29.85 billion lei, compared to the same period of last year.

According to the quarterly report, the bank"s average number of employees in the first six months was 8,062, compared to 7,930 in H1 2010.