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KB rides out SG investing scandal

French bank unlikely to press for increased dividend payments

By Michael Heitmann
Staff Writer, The Prague Post
February 6th, 2008 issue

Komerční banka (KB) is shrugging off speculation that the financial turmoil and takeover talk surrounding its parent bank, the French giant Société Générale (SG), will have any impact on KB’s operations.
“The investment banking businesses of Komerční banka and Société Générale are independently managed and have separate accounts, and KB’s main focus is on client-driven financial market transactions,” said KB spokeswoman Romana Ondrůšková. “The bank is more than adequately funded,” she added.
In France, officials Feb. 4 faulted the internal controls of Société Générale as a principle reason why the bank was unable to uncover the activities of a rogue trader who caused the bank 4.8 billion euros ($7.1 billion /125 billion Kč) in losses late last month, the largest fraud in financial history.
“Certain internal control mechanisms at Société Générale did not work,” said French Finance Minister Christine Lagarde. “And those that did were not always followed up with the appropriate changes.”
The junior trader, 31-year-old Jérome Kerviel, held positions in excess of 50 billion euros without being detected. He has since been charged with breach of trust and unauthorized computer activity for illicit trades in financial derivatives.
There was speculation in the markets last week that, to help alleviate its losses, SG would press for a higher dividend payout from banks in which it holds shares.
In theory, that could see KB paying dividends on last year’s profits in the range of 220 Kč per share instead of previous expectations of a 160 Kč payout, according to Marek Hatlapatka of the Cyrrus brokerage.
“[But] Société Générale would benefit only minimally, about 50 million euros,” Hatlapatka said. “That’s why I believe that SG won’t interfere with KB’s dividend policy.”
Patria Finance’s Jan Krejčí agreed: “It is not very likely that KB will substantially increase its dividends. I don’t think that news [about the fraud] negatively affected or will affect KB’s image, because SG’s problems should not influence KB’s operation or strategy.”
As evidence of KB’s robust financial position, Krejčí pointed out that KB’s shares on the Prague Stock Exchange actually increased 8 percent when news of the scandal broke.
There are lessons to be learned from the SG fraud. Each bank should make sure that its control system is able to spot illegal activities before it is too late, Krejčí said.
Though there are signs France could block a hostile foreign takeover, analysts say SG is unlikely to benefit from any sort of state-sponsored bailout.
“The finance business faces the same risks as any other business,” said Milan Vaníček, chief analyst for Atlantik FT. “State aid would only limit the market mechanisms.”

Michael Heitmann can be reached at mheitmann@praguepost.com


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