Fabrice Drouin Ristori is a Member of the Goldbroker.com Editorial Team


Introductory Remarks by PT:

Readers may recall that Mr. Jean Pierre Chevallier and Mish were heavily fined in 2013 by France's financial market regulator AMF for allegedly having published “incorrect information about the leverage of Société Générale”. Mish's account of the event can be found here. By issuing the fine, the AMF mainly achieved an increase in the popularity of Mr. Chevallier's blog and as a result, his views about SocGen's leverage probably attracted a lot more attention than they otherwise would have. Note here that his analysis merely eschewed the practice of 'risk weighting' assets, instead taking the bank's published numbers at face value – which we incidentally believe is precisely as it should be (a more detailed explanation of his method can be found below). For example, in light of the sovereign debt crisis in euro-land, attaching a 'zero risk weighting' to government bonds seems a laughable practice (in the meantime, this non-weighted ratio is simply referred to as the 'leverage ratio', and new regulations that were designed to limit it have just been diluted again at the beginning of the year). 

On to the interview:


Fabrice Drouin Ristori : Mr. Chevallier, thank you for this interview. Before we talk about the banks’ situation in France, could you quickly introduce yourself ?

Jean-Pierre Chevallier : As an associate professor, I mostly taught financial analysis at the University of Nice. I am now retired and continue to work freely as a contrarian business economist/monetarist/behaviorist, and I am continuing with my independent proprietary financial analyses.

FDR : You published a series of articles these last few weeks on your website Chevallier.biz , analyzing the financial results published by certain banks in France and showing risks to their own stability. Can you tell us on what signals or ratios you are basing your conclusions ?

Jean-Pierre Chevallier : I am basing my conclusions on the analytical tools that Alan Greenspan had the BRI adopted in the ‘80s, which are the Core Tier 1 ratio or its reverse, better known as leverage, which is the multiple of the debt total on the amount of unencumbered capital.

In the ‘80s Alan Greenspan thought that banks should have a Core Tier 1 ratio above 8%, or leverage below 12.5 (the total of a bank’s debt must not exceed by more than 12.5 times the amount of its unencumbered capital).

Following the later financial turmoil, he upped his requirements to a Core Tier 1 ratio of 10%, or leverage below 10.

FDR : This is not the first time you question the solvency of the banks, since you started talking about it in 2011, which actually brought you to be condemned, along with an American financial analyst, Mike Shedlock, by the AMF on November 7, 2013. You were found guilty, and I quote, of « having published inexact information on this bank’s level of debt ». Seeing that you’re still publishing on the matter, in spite of your condemnation, do you have any precisions, or new light, regarding this condemnation and the solvency of French banks ?

Jean-Pierre Chevallier : The AMF accuses me of having dared to publish in 2011 that Société Générale had a Core Tier 1 ratio of around 2%, or a leverage of 50, which it considers being inexact information, while the bank was pretending its ratio was over 10%. But, in its last report in 2013, Société Générale published for the first time its real ratio of 3.5%, which perfectly confirms that the number I used in 2011 was showing the real picture, whereas the bank was not publishing real numbers on its debt level, or inexact information.

FDR : Do you think these prudential indebtedness rules are followed by these banks ?

Jean-Pierre Chevallier : No. None of the large banks showing systemic risks is abiding by these prudential rules, as set out by Alan Greenspan. Only a few get close, particularly the large U.S. banks.

FDR : Why aren’t these rules applied ?

Jean-Pierre Chevallier : Implementation of these prudential rules set by Alan Greenspan would force all the large banks to considerably re-capitalize themselves, or to sell enormous amounts of assets, and the bankers aren’t ready for that.

FDR : In France, what banks do you think are the most exposed, and why ?

Jean- Pierre Chevallier : The worst one is Société Générale with real leverage of 38, equivalent to a Core Tier 1 ratio of 2.6%, according to its own 2013 annual report, because it is way under-capitalized.

FDR : Since we hear more and more of « preventive » bank failure, do you think that the looting of the savers’ bank accounts is a risk in France ?

Jean-Pierre Chevallier : Yes… this has already been done in Cyprus. As little as several banks are abiding by the prudential indebtedness rules, this is becoming more and more probable.

FDR : How would you advise depositors to protect themselves against this risk ?

Jean-Pierre Chevallier : There is only one French bank, on the national level, that abides by all the prudential indebtedness rules : the Martin-Maurel bank.

HSBC is one of the safest banks, along with BBVA and Standard Chartered, but these two are less convenient, having few branches.

Risk is high, in any case, for any deposit above 100,000 euros. Let’s not forget that, in French law, banks wield much power. In particular, titles owned by their client are not entirely theirs : banks consider themselves to be the real owners of said titles. In case of forced selling, the bank could sell its clients’ titles, and the clients would only become a financial counterparty for the value of those titles when ceded.

FDR : Thank you for having taken the time to answer my questions.


General view of a branch of French bank Societe Generale in Paris

Société Générale – Mr. Chevallier's analysis of the bank's leverage ratio in 2011 invoked the wrath of French regulators.

(Photo via Reuters / Author unknown)



Author bio:

Fabrice Drouin Ristori is a French investor and entrepreneur who has been a specialist of the gold and silver markets since 2008. He is the CEO of Goldbroker.com, which he founded in 2011.




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One Response to “Interview with Jean-Pierre Chevallier on the Banks’ Situation in France, by Fabrice Drouin Ristori”

  • in French law, banks wield much power. In particular, titles owned by their client are not entirely theirs : banks consider themselves to be the real owners of said titles. In case of forced selling, the bank could sell its clients’ titles, and the clients would only become a financial counterparty for the value of those titles when ceded.

    That is a pretty amazing statement. Kind of makes you wonder who is running things in Europe?

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