Egypt’s Central Bank May Intervene Again; SocGen Could Take Hit

Intervention strengthened pound, but French bank’s exposure could see losses

On Wednesday, Egypt’s central bank, which intervened successfully on behalf of the pound on Tuesday, said that it might do so again if the need arose. At the same time, Keefe, Bruyette & Woods (KBW) was warning that the continued unrest in that nation could result in a charge of nearly 100 million euros ($136.5 million) on French bank Societe Generale’s (SocGen) balance sheet, thanks to its business in Egypt.

Hisham Ramez, deputy governor of the central bank, said in a Reuters report that Wednesday’s market was calm, but "[w]e will intervene when we see the market is not orderly. If it is not, we will use our tools." The intervention on Tuesday saw the pound strengthened by more than 1%, arresting its steady decline since the beginning of the protests. UBS analysts, according to the report, put the currency’s potential decline at 25% within a month, and they are not alone; traders and strategists also expect more losses.

The turmoil has hit Societe Generale hard, thanks to exposure through its National Societe Generale Bank subsidiary. SocGen has the most exposure among French banks in Egypt, and according to KBW holds 3.5 billion euros in loans in the country. BNP and Credit Agricole, its chief rivals, are on the hook for 2.4 billion and 2.2 billion euros in Egyptian loan exposure, respectively.

SocGen is scheduled to report its 2010 results on Feb. 16, and while it is not usual for a bank to take a retroactive charge on its balance sheet—and Egypt was not experiencing unrest during 2010—unusual cases can lead to this action. Analysts, according to Thomson Reuters I/B/E/S, are forecasting SocGen’s net profit at 3.75 billion euros. Jean-Pierre Lambert, a KBW analyst, said in the report, "If there is a material deterioration in Egypt for SocGen, this may well need to be reflected in the full-year 2010 accounts." He went on to say that he expects a charge of 96 million euros.

Reprints Discuss this story
This is where the comments go.