The real leverage of Société Générale is… 50!
Indeed, the French bank counts in its equity item 2: Equity instruments and associated reserves which are actually different forms of liabilities related interests subject to some conditions.
Equity published in item 1: Sub-total equity, Group share should be reduced by Equity instruments and associated reserves (item 2) to determine the true equity at fair value (item 3) i.e. 22,535 billion of euros.
Total liabilities are equal to total assets (item 4) less the true equity at fair value (item 3): 1,135.473 billion of euros.
So, the leverage is the ratio of total liabilities on equity: 50.4 i.e. a Tier ratio at 2.0%.
Société Générale did not respect the rules of prudential borrowing as they were defined by Alan Greenspan.
|SOCIETE GENERALE||2007||2008||2009||2010||2011 Q2|
|Equity instrument etc||7,514||17,727||23,544||24,021||25,023|
The bank cannot lower the leverage below 50 (even, it was at 60 end 2008!).
To be good leveraged, it should increase the equity until 84 billion of euros!
French state should be recapitalized (nationalized) this Gosbank because it is too big to fail with liabilities at 1.135 trillion of euros for an annual GDP of France nearly at 2.000 trillion: 1,300 € per inhabitant (64 million)!
French (and European) banks have adopted rules of leverage at their convenience, which do not correspond to those internationally adopted. For example, they enter in their accounts, in the equity, quasi-equity which are actually liabilities as these Equity instruments and associated reserves.
Click here to read the latest Consolidated Condensed Interim Financial Statements as at June 30, 2011.
Click here to read the website for investors.