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Forum Post: Would Glass Steagall be "profitable"?

Posted 6 years ago on June 10, 2012, 6:46 p.m. EST by arturo (3169) from Shanghai, Shanghai
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Alpha Value, a very respected private firm of financial analysts published a report saying that Glass-Steagall banking separation "à la française" would be the best way to go for President Hollande in France and for the rest of Europe.

According to Les Echos, while François Hollande is still undecided about the technical details of the separation of banking activities he wants to adopt, Alpha Value "calls for the rapid implementation of this measure," i.e., return to a strict Glass-Steagall "in Europe and especially in France."

In line with the worry of U.S. community bankers, the report observes that the value of stocks of the four French banks — BNP Paribas, Société Générale, Crédit Agricole SA, and Natixis — has dropped by 81% since 2007. However, if a strict banking separation were adopted and the parts valued separately on the stock market, shares of BNP Paribas would rise by 37% and those of Société Générale by 38%.

Therefore, says Christophe Nijdam, the leading banking analyst of Alpha Value who coordinated the report, the shareholders should speak up in favor of a solution "which could bring up the value of their shares and could also be profitable to other players."

Nijdam, a respected banking analyst and former associate professor at Sciences-Po, served as the VP and General Manager of Crédit du Nord New York and VP at Crédit Commercial de France (CCF) Paris and New York. For him no doubt: "Since the end of the Glass-Steagall Act, finance started going wrong."

Going through the three available options (Volcker Rule, Vickers ring-fencing and Glass-Steagall, Alpha Value concludes that only a strict return to the original Glass-Steagall would be profitable for both the shareholders, the clients, and the depositors. It would only hurt the traders and the management. "But the 2% of those employed by the banks are holding the remaining 98% hostage!" says Nijdam.

Nijdam seems aware this is only the first step for a general clean-up. Glass-Steagall alone will be insufficient to protect against a systemic risk, says Nijdam who mentions the danger of derivatives "which represent, broadly defined, ten times the size of world GDP. It has become monstrous, the equivalent of a weapon of mass destruction!"

Les Echos, which gives the report major coverage, adding a half-page allowing Nijdam to debunk all the arguments against Glass-Steagall from the French banking establishment.

The report also comes out in the midst of the legal appeal of convicted former Société Générale rogue trader Jérome Kerviel. Kerviel not only revealed that the top management of the bank was duly informed and fully aware about his risky speculative positions which lost the bank nearly EU5 billion, but accused management of having sacked him in order to cover up major losses they were having at that point.




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