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Wednesday, November 20, 2013 6:05 PM

Mish Fined 8,000 Euros for Quoting French Blog

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A few days ago I learned, via a French blog, that I was fined 8,000 euros for quoting a French blogger. I would have known earlier, but the letter notifying me of the fine was sent in French.

In an earlier express letter packet, I could make out a few of the words, in particular noting a summons to appear before a tribunal in France. Needless to say, I did not go.

Let's backtrack to my blog post that started it all.

On August 15, 2011, I posted BNP Paribas leveraged 27:1; Société Générale Leveraged 50:1; Sorry State of Affairs of U.S. Banks; Global Financial System is Bankrupt

Société Générale took exception to the numbers and came up with its own set of numbers. According to SG, its leverage was 9.3%.

A day or so later, Chevallier redid his calculations and I added this addendum.

Société Générale disputes the numbers and new calculations using the banks' numbers are 28:1 or perhaps 23:1 not 50:1 as noted on Forex Crunch.

My position has not changed much. Something is seriously wrong at Société Générale. Banks do not plunge out of the blue on rumors. I do not know the precise leverage, but shares are acting as if Société Générale has severe capital constraints (which of course they will deny) and/or other major problems.
Société Générale was not happy to say the least. They wrote the SEC (in English) complaining about my blog.

The lengthy complaint went along the lines "I should accept as fact any numbers given to me by Société Générale".

French Banking Primer

On September 2, 2011, the Wall Street Journal chimed in with A French Banking Primer
The effects of a system that 'encourages excessive financial leverage'.

By its own account, Credit Agricole's tangible common equity is just 2.1% of its assets—which means its €1.6 trillion balance sheet is leveraged nearly 49-to-1. Credit Agricole argues that €500 billion of that should be netted out because of its hybrid banking/insurance business model, which still leaves it leveraged 33 times.

BNP Paribas and Societe Generale are somewhat less leveraged, at 24 and 23 times their tangible equity, respectively. As a group, these three banks have some €4 trillion in assets on their balance sheets, supported by €129.3 billion of tangible common equity. By contrast, J.P. Morgan Chase and Bank of America have nearly $4.4 trillion in assets between them, supported by $253 billion in tangible common equity. That's a leverage ratio of 17 for the U.S. banks versus nearly 27, on average, for the French big three.

An IMF report in July offered one explanation for why French banks remain so heavily leveraged compared to their U.S. counterparts. The authors note "the bias of the present system" in France, "which encourages excessive financial leverage, and contributes to a dearth of equity financing for innovative projects and an inefficient allocation of resources." Among France's peculiarities, the IMF cites France's high financial-sector corporate tax rates and generous credits and subsidies to debt-financed investments, which effectively reward borrowing over equity financing or retained earnings.

According to the Bank for International Settlements, the French banking system's total exposure to the riskiest euro-zone countries is $671.7 billion (€489.9 billion) as of March. That figure is equal to nearly 7% of all banking assets in France, more than a quarter of France's 2010 GDP and more than three times the combined equity of France's three biggest banks, which together account for 65% of the country's total banking assets.
Those facts did not stop Societe Generale from whining to the SEC.

My SEC contact said that he was obligated by agreement to pass on the complaint, adding something along the lines of "French banks were notorious about filing frivolous complaints".

Summoned to French Witch Hunt

I received one more express letter from France, in English, telling me subsequent letters would be in French and that I had to respond to the complaint in French.

I received a few more correspondences, totally in French, but did not scan them or translate them, although I could make out a few words in one of them, specifically noting that I was personally summoned to a witch hunt.

8,000 Euro Fine

The tribunal ruled "Mish is a Witch".

A few days ago I received an email about my fine, and an offer of support from the French blog Les-Crises.

Here is the email.
Hi Mish,

I'm Actuary, and I've created the blog Les-Crises.

My post of the day is to criticize our AMF, explaining why they are wrong: [GROS DÉLIRE] Quand l’AMF sanctionne les blogueurs plutôt que les financiers!

The decision if really incredible. I'd like to help you.


Olivier Berruyer
Paris, France
The title translates roughly to "Gross Delirium: The AMF sanctions bloggers rather than financial corporations!"

I asked my friend Pater Tenebrarum at Acting Man for a synopsis.
With thanks to Pater:
The French authorities accuse Chevalier of 'knowingly disseminating false information' about SocGen and you to have disseminated it further on 'Chevalier's urging', although you should have known better and it was your duty to check if his numbers were right (that is the basis for fining him 10,000 and you 8,000 euros).

Les-Crises shows that Chevalier wasn't 'falsifying' anything. He merely did not use the so-called 'risk weighting' of assets in his calculations (whereby e.g. Greek sovereign debt has 'no risk') . What he did was calculate a kind of leverage ratio, apparently following a standard for calculation very similar to one laid down by Alan Greenspan some time ago.

Les-Crises points out that Chevalier did not 'invent' any numbers - he used only data published by SocGen. Chevalier never asserted that his calculations represented a 'tier 1' ratio according to the Basel rules with their risk-weighting - it always was a 'Chevalier leverage ratio' so to speak, calculated using SocGen's publicly available balance sheet data.
Banksters Strike Back

Today a second article came out regarding the witch hunt, this time in English: France: Banksters Strike Back Against Bloggers
Societe Generale was not happy with Jean Pierre Chevallier's blog and lodged a complaint aith the the French financial market supervisory authority, Autorité des marchés financiers (AFM), and the AMF has now astonished Mr Chevallier and a lot of others, including this blogger, by upholding the complaint and fining Jean-Pierre Chevallier €10,000 for publishing "inexact" information which might influence the share price.

Mr Chevalier intends to appeal against the AFM verdict and says he is also planning to sue the AFP for making false and defamatory accusations against him.

The AMF has also fined Mike Shedlock €8,000, of Mish's Global Trend Analysis, published in the USA, for the same offence against Societe General. Shedlock reported the Chevallier analysis.
No Jurisdiction

The Witch hunt is now over and I was fined nearly as much as Chevallier. It's absurd enough to fine someone for a quote, and even more so when the facts are accurate.

The AFM has no jurisdiction over me, so they won't collect. As a US citizen living in the US, I am not subject to the absurdities of French laws, or French witch hunts. All they get from me is a vow to never go to France.

Best wishes to Chevallier in his fight against absurd fines and bureaucratic madness gone wild. Hopefully he can use the article from the WSJ in his defense.

Mike "Mish" Shedlock

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