Instead of going after the megabanks that have wreaked so much havoc, French regulators are going after bloggers who try to shed some light on them. It’s more convenient.
France’s Financial Markets Authority (AMF) announced on Nov. 14 that its Sanctions Commission had decided to slap fines on two bloggers, Frenchman Jean-Pierre Chevallier and American Mike “Mish” Shedlock, “for having spread inexact information about the level of indebtedness” of megabank Société Générale.
The same bank, incidentally, that entered the annals of the silly when it blamed and successfully hounded a low-level trader, the hapless Jérôme Kerviel, for its €5 billion zinger of a loss during the financial crisis, while other banks blamed their toxic assets.
The press release explained that an investigation had been opened in August 2011 concerning “rumors about the indebtedness” of SocGen. The sinful act: On August 14, 2011, Chevallier posted an analysis (in English) of SocGen’s financial statements that came to the conclusion that the bank’s leverage ratio was much higher than it had indicated – namely 50:1 – and that the Tier 1 capital ratio wasn’t 9.3% but 2%, that in fact, there was hardly any capital left in the bank.
The AMF accused him, a “former finance professor who taught financial analysis,” of having spread “information that he knew was inexact with respect to the accounting rules in effect and the applicable principles of ‘Basel II,’“ which govern capital requirements for banks. And he was slapped with a fine of €10,000 ($13,400) for having doubted the sacrosanct veracity of SocGen’s financial statements.
As we have seen innumerable times, the truth about a bank’s financial condition seeps out only after a bank collapses and someone picks up the pieces and counts what’s left. The AMF knew this all too well. The shakiness of the French banks was no secret: Belgian-French megabank Dexia collapsed in October 2011, after having already been bailed out in 2008, and after having passed the European Banking Authority’s “stress tests” a few months earlier which determined that it was the 12th safest bank of the 91 banks examined! Strung-out French taxpayers are still paying the tab for it.
Ironically, at about that time, a 2010 report by the AMF surfaced with the results of its multi-year investigation into Dexia. It concluded that the bank was in such bad shape that it should be put “under special supervision” by the AMF. And then? Nothing. The report was buried. Until the Libération obtained a copy of it after the bank had collapsed. Turns out, Dexia’s financial statements weren’t worth the paper they were written on.
So doubting bank financial statements is not an unreasonable act.
Digging through financial statements and coming up with conclusions that differ from those that the almighty bank serves up is just a sign of not having yet imbibed too much of its Kool-Aid.
Freedom of speech, bien sûr, somewhat, kinda. But not when it comes to French megabanks. Nope. No one is allowed to doubt anything. Are they in that bad of a shape that they cannot withstand the doubt of a blogger?
On August 15, 2011, Shedlock quoted Chavallier in his blog post. He too was investigated and hit with a fine. His sin? Quoting a blogger who’d dared to doubt the sanctity of the balance sheet of a French megabank. €8,000 – because as “financial professional,” he should have noticed the “inexactness of the information.”
A first even in France, according to the AMF (emphasis mine):
In its decision, the Sanctions Committee stated that it had jurisdiction to rule on the dissemination of inaccurate information about a financial instrument that can be traded in a regulated French market, whether or not it was disseminated in France, and regardless of whether it was disseminated by a Frenchman or a foreigner. And for the first time, the commission applied Article 632-1 of the AMF’s General Regulations to information posted on the Internet by financial bloggers; it reads: “Everyone must refrain from disclosing or knowingly disseminating information, regardless of the medium used, that gives or may give inexact, inaccurate, or misleading indications about financial instruments, including spreading rumors or broadcasting false or misleading news, when that person knew, or should have known, that the information was false or misleading.”
A blatant attempt to gag doubting bloggers. Chevallier responded on his own blog, in French: “The bosses of our big banks don’t like people who disturb them in their shenanigans. They prefer calves” – in the US, we’d say sheep. He goes on:
The AMF has come to punish me for having published analyses that denounce the manipulations of prudential rules practiced by these banksters, based on elements that do not correspond to reality and on reasoning that only they can dare to support.
People at the AMF have clearly exceeded their powers in order to intimidate anyone, in France and elsewhere in the world (!), who dares to challenge the fraudulent statements and publications of the banksters.
He’d appeal the decision. And he explained that he published this post on his blog hosted in Switzerland (www.Chevallier.biz) rather than the one hosted in France (www.jpchevallier.com) because he has “no confidence” in French institutions.
Doubting the financials of French megabanks wasn’t unique to uppity bloggers. For example, The Wall Street Journal reported on September 23, 2011, that Credit Agricole had a leverage ratio of 33; BNP Paribas and Société Générale were “somewhat less leveraged, at 24 and 23 times their tangible equity, respectively.” Maybe the WSJ too got hit with an investigation and will soon find out about the fine.
The absurdity of going after Mike “Mish” Shedlock
But the most outrageous, nay silly, aspect of France’s attempt at a worldwide crackdown on doubt about megabank balance sheets is the attack on Mike Shedlock who dared to quote Chavallier in his post BNP Paribas Leveraged 27:1; Société Générale Leveraged 50:1; Sorry State of Affairs of U.S. Banks; Global Financial System is Bankrupt.
SocGen complained to the SEC about the post back then. The SEC contacted Shedlock. In his post today about that sordid French banking hissy fit, Mish Fined 8,000 Euros for Quoting French Blog, he wrote: “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.’”
“The idea that I cannot quote someone is insane,” Shedlock told me in an email.
As Chevallier pointed out on his blog, and as Shedlock pointed out, and as Barnes pointed out, and as anyone with any sense would point out: instead of going after the megabanks that have wreaked so much havoc, French regulators are going after bloggers who try to shed some light on them.
How will Shedlock confront this issue? With some good old Yankee ingenuity: “The AFM has no jurisdiction over me, so they won’t collect,” he writes. “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.”