Interview with Frédéric Oudéa CEO Société Générale.
Rencontres Paris Europlace 2012 : Financial Markets Reforms and Société Générale Strategy
This is the transcript of the video done by Web Tv www.labourseetlavie.com, only the entire video can be considered as source.
Interviewer Didier Testot Web Tv www.labourseetlavie.com
Frédéric Oudéa, thank you to be with us today!
Frédéric Oudéa CEO Société Générale
Hello ! It’s a pleasure.
Interviewer
You are the CEO of Société Générale. You are at the Paris EUROPLACE today, talking about the financial crisis and how you can optimize or finance the economy. Do you think that Bâle 3 and Solvency 2 are the key issue today for all the banking sector?
Frédéric Oudéa CEO Société Générale
These are really very important reforms. They should probably actually be looked at and considered together and they are very important because today the challenge is the financing of the economy, and these two reforms will trigger very significant changes to the way we finance the European economy, with more capital market involvement in the financing of the economy and, if you wish, from that perspective it is very important that also the investors, the insurance companies, the asset management, etc. are part of the system.
So, yes, they are fundamental reforms, we should not underestimate the challenge that we have to implement these reforms in a very short term frame.
Interviewer
In Europe do you think that things are better after the last summit, do you think that there is more optimism? It’s real?
Frédéric Oudéa CEO Société Générale
Well, definitely, I must say I think the governments have made a good job and the outcome of the summit was well received by the markets because the markets saw a very significant first step in the direction that the markets expect, which means further integration of the euro zone and, of course, in particular with this banking union concept which is going to be further defined and implemented, and also some clarity and precisions on the way the European mechanism, the financing mechanism, could intervene in the banking sector without putting too much additional pressure on the governments and the countries which are involved.
So, yes, these are important steps, the summit was well received. Of course, there is more to be done going forward.
Interviewer
About the news in the banking sector, we have bad news about JP Morgan, Barclays and the Libor, are you concerned by the Libor scandal, because we can read that there are 40 banks that can be in this part?
Frédéric Oudéa CEO Société Générale
Let’s see the outcome of that issue and I think we need to take some step back. There are some stories which are still putting pressure on the image of the banks, but at the end of the day what is important is that, first of all, there are again some significant changes which are being implemented with new reforms. Secondly, the resilience and strength of the banking system rely predominantly on the quality of the regulation and the controls, and on the quality of the credit origination. We should not forget that and, when I look at the crisis, in particular in the last five years, the major damages, in the US with the subprimes, in Ireland, and more recently in Spain, come from the real estate. And for example, the good thing in France is that the credit origination, the mortgage credit origination, remain sound, and that is very important for the strength of the banking sector, in France.
Interviewer
How can you explain that… you said that the universal banking model to the French or the European model is a key model, is a strong model and that you have, like other banks, to go the ACB office to ask for money.
Frédéric Oudéa CEO Société Générale
First of all, let me say the universal banking model showed its resilience through the crisis, and when I look just at the most recent example of the bank failure, BANKIA, it’s a very simple bank, just a commercial bank lending, no capital market activities, and it is going to cost something like 23 billion euros to the tax payers in Europe. So if you wish it shows that the universal banking model provides something that specialized firms do not: diversification of risk and again a good service to the client.
Now, the liquidity aspect is something different because, in the crisis of confidence in the euro zone, it was important that the European central bank provided to the European banking system, as a whole, a safety net and sent a message to the market saying “I will provide liquidity to the banks which support the economy”. It’s a safety net, it certainly gives comfort, going forward, and time to the banking sector to progressively adapt to the new regulation and to the deleverage. So, it’s a very good decision, the amount of money, 500 billion euros net, is small compared to the size of the lending, it’s a good thing and it helps banks to adapt and effectively carry on financing the economy in Europe.
Interviewer
If we are looking at the price of the share of Société Générale, remember in 2008 it was 120, this week it’s 19 euros, can’t we say that there is a value destruction with the universal banking model? It’s not the crisis, it’s not only the crisis.
Frédéric Oudéa CEO Société Générale
All banks have seen their share price disappearing when they have not disappeared themselves because today there is a lack of confidence in the economic environment, there is a lack of confidence in the euro zone, there is a lack of visibility on the rules of the game of the regulatory side, it is normal that the share prices of the banks do not actually today reflect, I think, their potential, and it is the same for Société Générale like the other French banks, or all banks in Europe. So, what is important now is that we have more visibility, more clarity, less uncertainty and, we, on our side, work on adjusting our business model, focusing on the activities which will deliver to our shareholders decent return on equity, if we do that, I am confident that the share price will reflect all these efforts.
Interviewer
Do you think that you are stronger now than maybe at the beginning of the year, because of the new model or you think that the crisis is always there, so you have to be cautious?
Frédéric Oudéa CEO Société Générale
On one hand, first of all, we are stronger every day, every week, every quarter. Why? Because we further increase our capital base. Let me just remind you that Société Générale in 2007 had 24 billion euros of capital. Today it is 41 billion euros. You know, so it is a big increase that we’ve made progressively. We are going to further enhance the capital base. So clearly we are stronger every day. Now, at the same time, of course, we need to further adjust to the business model, to the new regulation, and we have a target as you know to be at 9% Core Tier 1 Basel 3 end of 2013, we have to do that, and of course be conservative in the way we monitor our risk.
Interviewer
Frédéric Oudéa, CEO of Société Générale, thank you to have been with us today.
Frédéric Oudéa CEO Société Générale
You are welcome!
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