Societe Generale: In midst of sovereign debt crises

INTRODUCTION

(Societe Generale-FULL YEAR AND 4th quarter – 2013 results, 2014)

Due to the global financial crisis of 2008, the major countries of the OECD implemented economic stimulus plans that increased their public debt levels and deteriorated public finances. It also led to eurozone debt crisis and Greek debt crisis. The European debt crisis was multi-year debt crisis erupted in several Eurozone countries at the end of 2009. It was characterized by environment of high governmental structural deficits and accelerating debt levels.

In January 2008, the bank faced a loss of €4.9 billion (equivalent to US$ 7.2 billion) due to fraudulent transaction by single future trader. The future trader allegedly orchestrated series of bogus transactions that spiralled out of control amid volatile market in 2007 and early 2008. This led to two credit rating agencies reduced the bank’s long term debt ratings from AA to AA- (Fitch) and Aa1/B to Aa2/B- (Moody).

Société Générale is facing the problem of financing needs and is now wondering how to attract a large base of investors over the long run to maintain its finance conditions that are compatible with the sustainability of their public debt. France current account balance has worsened drastically over the last ten years. Also the deterioration in the external current account balance reflects the drop in the national economy’s position of the lending. France’s public deficit shot up as the income fell sharply because of the poor economic environment and authorities’ implementation of the stimulus plan. Households increased their savings by one point over the year and significantly reduced their investment spending.[1]