August 10, 2012 / 11:56 AM / in 6 years

SocGen fires starting gun on business-unit sales

PARIS (Reuters) - Societe Generale’s (SOGN.PA) sale of its stake in asset manager TCW was a welcome move as the French bank plays catch-up with peers further ahead in their capital-raising efforts during the euro zone crisis, but the disposal was only a first step.

The question now is whether France’s No. 2 listed bank will be able to sell other, non-U.S. units over the coming year at acceptable prices, potentially getting a capital boost that would lift investor confidence, analysts said on Friday.

“Societe Generale could still sell its custody business, or potentially its insurance unit, or its consumer-credit division in Italy,” Natixis analyst Alex Koagne said.

“But as long as there is no appetite for euro-denominated assets it is going to be tricky.”

Chief executive Frederic Oudea has promised business-unit sales since 2010, as part of a strategy to keep the bank strong enough to stay independent and avoid having to tap the market for fresh capital. Those have yet to truly materialize, with bankers blaming investor aversion to euro assets.

That has left SocGen and larger rival BNP Paribas (BNPP.PA) focused on selling portfolios of loans, rather than business lines, to shrink their balance sheets after the euro zone crisis yanked once-cheap market funding from their grasp.

U.S. banks like Wells Fargo (WFC.N) and Citigroup (C.N) have been on hand to buy those loans.

The deal to sell Los Angeles-based TCW to its staff and Carlyle Group for an undisclosed sum, announced on Thursday, was due to close early next year. Sources told Reuters last month Carlyle was leading the race to buy TCW in a transaction which could value it at $700 million.

The TCW deal was expected to add 0.13 percentage point Basel III capital. SocGen, which has not said where it stands under Basel III methodology, is seen by analysts as lagging peers like BNP, which hit 8.9 percent under Basel III at end-June.

Though not critical to hitting SocGen’s minimum core capital ratio target of at least 9 percent at end-2013, under stricter Basel III rules that are closely watched by investors, the bank has said disposals could add 0.5-1.0 percentage point’s worth.

SocGen shares were up 1.3 percent to 20.10 euros at 1115 GMT, outperforming a 0.1 percent lower European bank sector index .SX7P. The stock, which has risen a quarter in value since late July lows on hopes of central bank action, still trades at a book-value discount to many European peers.

“While it is positive to see SocGen take the first step in its disposal program, more delivery is needed to be more comfortable on capital,” ING analysts said in a note. “The drag (on profit) of future disposals will likely be higher.”

The last time SocGen spun off a major business was in 2009, with the creation of fund manager Amundi from its own assets and rival Credit Agricole’s (CAGR.PA). SocGen’s remaining 24.9 percent stake in Amundi is non-strategic, said Natixis’s Koagne.

Koagne said that while Credit Agricole would ordinarily be a natural buyer it was tied up with difficulties in Greece.

Additional reporting by Alexandre Boksenbaum-Granier; Editing by Dan Lalor

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