WHEN: TODAY, MONDAY, SEPTEMBER 12TH AT 4PM ET
WHERE: CNBC'S "CLOSING BELL WITH MARIA BARTIROMO"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Societe Generale Chairman & CEO Frederic Oudea today on CNBC's "Closing Bell with Maria Bartiromo." All references must be sourced to CNBC.
BARTIROMO: So lots of speculation the French banks are going to get a downgrade from Moody's after the firm put the French banks on negative watch. What's your reaction to that?
OUDEA: Well you know, three months ago, Moody’s announced they would review the 3 major French banks, looking at their exposure to Greece. At the end of the day, we feel that Moody’s might realign its rating with the other agencies, but nothing more than that, so we are waiting for the decision.
BARTIROMO: You have announced some major changes at the firm this morning. Talk to us about the most impactful changes that you are announcing yesterday and today and how that is going to impact the balance sheet of Societe Generale.
OUDEA: Yes, first of all, what we try to say is give facts, and forget about perceptions. The first important fact is our very low and limited exposure to sovereign debts in the so-called GIPS countries in particular, regarding Greece, which is limited today to 900m euros, so whatever happens in Greece, it is not an issue for Societe Generale, which has as you might have in mind, has over 41 billion euros of capital. So that’s a very important point, and it has been declining and I think it’s not an issue for us.
Secondly, we also reassured on our short term funding in dollar and you know there was for all European banks, a reduction of exposure in money-market funds and we shown that we’ve been able to manage this reduction looking at alternative sources of us dollar funding, we’re reducing exposure as well as using abundant sources of euro funding, and using the euro-dollar swap. That I would say for the image the current sound base, what we have also said that after August, there is a new environment-there is no doubt about that-and that we need to speed up the transformation. So, we highlighted that in particular in the CIB business that we would reduce our balance sheets for activities which are particularly impacted by new regulatory environment, as well as having limited cross-selling opportunity with the rest of our businesses. We will focus on cost reduction in CIB for example, 5% immediately. But also in countries such as russia where we will benefit from the merger which is going forward, and we will cut the staff by 2000 people by next year, and eventually we will accelerate out disposal program and we will want to dispose of the equivalent of 4 billion euros of capital by end the of 2013.
BARTIROMO: I guess, Mr. Oudea, one of the issues is the market's-- perception and-- and really the confidence in this plan and in the entire euro zone. Because we're watching your equity fall. I mean, the stock has lost-- more than 40 percent of its value. We hear that you can no longer issue commercial paper in the United States other than over night. We hear that a number of-- banks have stepped back from inter bank lending with yours. Obviously we're watching your stock fall. So don't you need to respond even further to this speculation in the market? What's your next move? You've got to have a plan in place regardless.
OUDEA: First of all these perceptions, these rumors, are not true. And we have still the capacity to issue CP in dollar which is more than overnight, we also have a big liquidity buffer with 105 billion euros of liquid assets out of which 80 billion is eligible to central bank re-financing and we did not touch this amount of money. So I think really, the perception compared with reality is really false and again, we have just announced our willingness to adjust the business model. I think that you know there is the fear about the Euro zone and the need for the European banking system to adapt to new rules but you can’t do that in just one day and we have to have a transition period we will be very active in managing this transition period but we would need a minimum amount of time.
BARTIROMO: So of course being active -- means continuing to shrink the balance sheet. When is it too much that it actually impacts the growth of the firm? How will Soc Gen look different in two years after the-- shrinking of the balance sheet that you are right now in the midst of?
OUDEA: First of all, I would like to say that we have started already two years ago with our corporate and investment banking business-- developing capacity to distribute the landing, selective fixed income franchises such as, for example, in the U.S. We've already very-- positive successes-- with different-- clients-- not U.S. client necessarily, but clients across the world which wants to access the U.S. dollar fixed income market.
It is the same in-- in Europe with, for example, the high-end market, which is developing. And we just-- we were one of the—book RUNNER of—a high-end business—high-end issue for a German business. So the transformation of CIB using less liquidity capital has already started. This is something which is going to accelerate and that doesn't not prevent us precisely to make money. But again, we've less capital and less liquidity.
Let me just highlight that in the last two years we've reduced significantly the risk-- on-- in our balance sheet in terms of capital markets. We haven't-- at August we've-- the lowest level of market risk ever, which has enabled us to FAIR this-- period of turbulence-- pretty well, in my view.
BARTIROMO: But how does that change if and when Greece defaults? First off, Sir, are you expecting Greece to default? Is it at this point a given that we will see Greece default? And then the question becomes what are the implications of that? Is Italy right behind? And is Soc Gen prepared?
OUDEA: Absolutely-- I've mentioned that our total exposure for the five GIPS (Greece, Ireland, Portugal, Spain) countries is 4.3 billion Euros. Regarding Greece the net amount of bonds is 900 million Euros and it's marked down by 35 percent on average. So make your calculation on Greece. If you want to add 15 percent, let's say for example, it is absolutely margin, it is probably an impact by 100 to 150 million Euros of net profit.
That is what a sixth of-- a quarter-- of the first half this year, it's-- of the quarter results, it's minimal. And when I just look at the total mark-- to market of our banking book exposure it's 400 million Euros. So it's absolutely ridiculous figures. What I mean by that is that compared with the market-- risk's perception-- on the-- on the sovereign debt, it is absolutely limited for Société Générale. We cannot have any major impact. So what is at stake is then the transformation for-- in the new world-- in the new regulatory environment. And that's something where we will be very active in the next two years.
BARTIROMO: Well, it could be-- you know, very limited and of course ridiculous as you say it. And yet your company has lost almost 50 percent of its value since August 1st. To what do you attribute this stunning drop in market value?
OUDEA: Again, I think that there's the fear on the Euro zone as you mention and also this-- issue of-- transformation of the model. I will communicate the figures and the facts-- that we released-- today to the market also in the U.S.-- tomorrow-- highlighting where we stand, their capacity to adapt, the fact that there will not be a big problem with Société Générale whatever-- the scenario is on Greece.
And that again, we can build on this sound base, a bank with as I said, less leverage, less leverage in particular on the CIB business with disposal, a model which will be simpler using less balance sheet and less U.S. dollar funding needs. This is something we are-- have already started to do very actively in the summer. We are pursuing that-- and I'm confident to be able to achieve this transformation.
BARTIROMO: Mr. Oudea, let-- let me broaden out for a moment and-- and put Soc Gen aside and get your thoughts on the-- overall situation here from someone-- obviously yourself, who is-- very familiar with-- the ripple effect. If we were to see Greece default is Italy very close behind? What are the ripple effects, putting Soc Gen aside, from your standpoint tell me how this plays out?
OUDEA: I mean, here again we-- we manage perception. Could we agree that Greece is a specific example? First of all, because of the level of debt this country this country has effectively so far-- aggregated around 145, around 150 percent. Secondly, more importantly, I think we all admit that it's a country-- which-- in which it's more difficult to collect-- just to collect taxes. Could we agree that Italy, Spain, Portugal are very different countries from that perspective, able to address their issues and have an impact?
And look at Ireland. Ireland, which was in a difficult situation and which seems to be already-- out in terms of problems. What I do mean by that, of course some people might think w-- who will be next? But I think here it's more about perception that's reality.
BARTIROMO: Let's look forward toward the Basel III requirements. We know that the requirements will mean much higher capital for the major banks, yours included. Now, what you're telling me today is that you meet those requirements right now in terms of tier one capital. Do you expect that your capital levels will be higher once those requirements are mandatory?
OUDEA: What we say is that our objective is to have a quarter one ratio well above nine percent at the end of 2013. This is full Basel III including all-- the new regulatory rules. So of course, let me just say-- between 2007 and 2000-- and today-- the end of June 2011, we have already doubled our SHAREHOLDER equity basically without increasing our-- our balance sheets, to summarize.
We know that we will have to further increase the-- this-- equity-- the-- the-- the quarter one equity while at the same time-- reducing the balance sheet. So yes-- of course the requirements-- the equity requirements will be more important. That's why we have to address the businesses with in practice less lending in the balance sheet, less intensive-- capital intensive businesses and more dis-intimidation in the business-- I mean, distribution credit-- distributing credit to investors.
This is a major change for European banks because-- and the U.S. market needs to understand that, the banks are financing-- are a major player in the financing of the economy. Where on the contrary in the U.S. they have a relatively marginal part compared with capital markets. But the European banking system cannot again, switch from one model to the other in just two days, this is impossible. And there's a need to have a transition, something like two-- years for Société Générale to develop further these new businesses and again, as I've said, reduce effectively the commitment in the balance sheet.
BARTIROMO: So is there anything else you can do over the short term to calm the markets to in fact as you say, instill that confidence-- as you continue with your plan at hand?
OUDEA: Well, I think that's-- a lot is depending-- on the Euro zone and I would say first of all if there's one topic surely-- to-- to-- h-- deal, to address the Greek problems. I think it's-- a problem which drags and probably everybody in the market is-- tired with that problem and probably people feel it means Europe cannot handle-- its issues.
So the first thing-- would be to put-- Greece behind us. Secondly, again I will communicate as much as I can on the capacity we have based on sound businesses, based on very highly sophisticated expertise in terms of credit origination. But we have the capacity to develop these distribution businesses which again, will be less capital incentive while being as profitable than a pure lending business.
BARTIROMO: It sounds like you would like Greece to default, get out of the Euro so that everyone can move on with their business.
OUDEA: Again, for us whatever the scenario is it is not an issue in terms of capital. It is not an issue in terms of results. I would like this problem behind us so that again, people can come back to realities a big more and avoid this irrational fear in my mind regarding the Euro zone.
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