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Credit market turmoil effects may last years Adam Jones / FT.com | August 3, 2007 The turmoil in the credit markets is likely to have an effect on financial institutions for years, according to the chairman of Société Générale, the French bank. Daniel Bouton, one of the most senior figures in the French banking industry, said “an extremely sizeable credit bubble has burst”. “When a bubble bursts, the distribution of the cost of the bubble among the thousands of involved parties around the world is probably going to take years.” However, the veteran banker said that there had been no signs so far that the big US or European banks would be hit by losses of a menacing scale: “For the moment, I don’t see any news that suggests that the big financial players in the US or Europe are involved at a substantial level in relation to their size.”
Mr Bouton was speaking as SocGen announced strong second quarter results that enabled its share price to regain some of the ground it had lost in recent weeks amid anxiety about the outlook for bank stocks. Revenues rose 16 per cent to €6.622bn ($9.1bn). Stripping out the exceptional gain from the share disposal, the like-for-like revenue increase was 11 per cent. Net profit rose 33 per cent to €1.744bn. Excluding the share disposal effect, the increase was 15 per cent. The strong quarterly performance included a 17 per cent increase in corporate and investment banking revenue. SocGen shares were trading at €129.89 late Thursday afternoon, an increase of 5.4 per cent on the previous day’s close. SocGen said its own exposure to the forces behind the credit market jitters was very limited. It said it had a limited presence in securitisation and collateralised debt obligations. Jean-Pierre Mustier, the head of SocGen’s corporate and investment banking business, added that the bank had no cause to worry about leveraged buy-outs. He said its loan portfolio contained about €2.7bn of LBO debt at the end of June, and is holding a further €600m that it intends to sell on to other investors. SocGen has said that it could eventually merge with another European bank. Mr Bouton reiterated on Thursday that a deal was “neither necessary nor urgent”. He said the current market volatility was unlikely to influence the pace of consolidation within the European banking sector, arguing that the big players seemed to be on top of the 1situation. CLICK ON THE BANNER TO
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