Societe Generale's financial and reputation losses devaluate their stock capital, Blagodat Securities says

31 January 2008 (09:01)

'Societe Generale has already lost Ï4.9bn in terms of financial damage, while its reputation loss is reflected in the plummeting rating indicators. In the long run, both the financial and reputation losses the bank has suffered have already devaluated its stock capital. Besides, these losses are featured in the bank’s end-of-year report,’ Vsevolod Chaschin, General Director of Blagodat Securities Investment Company, said to UrBC.

Societe Generale, France’s second largest bank, lost Ï4.9bn ($7.1bn) due to one of its traders’ gerrymandering related to European stock exchanges’ indices futures. An 80% decrease in the bank’s annual profit is expected.

'The damage done to the bank’s reputation will probably result in less stable liabilities, fewer long-term contracts, stricter supervision on the part of the authorities, limited access to some capital markets, and much shattered goodwill,’ he added.

'The first and foremost thing to do is to confess the mistakes and explain their causes openly and publicly. In addition, the bank needs to be truthful in speaking about the possible losses and how they are going to offset them using their reserves, insurance, profits, and stock capital. Then, it’s crucial that the bank should improve its internal control systems and redesign its off-balance-sheet risk assessment programs in the nearest future,’ Mr. Chaschin said.

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