Greek Bonds, Dexia Trash, French Postal Service, & Profit

Two freaks—Greek bonds and bailout-queen Dexia—wormed their way into an earnings announcement today, this one by the French postal service. La Poste has its share of strategic problems and government interference, much like the United States Postal Service. But it made a profit and will pay a dividend to the French government. Only the USPS is run by 535 clueless micromanagers in Washington.

The USPS is a big business with $64 billion in sales last year, and a loss of $10.6 billion, counting the retiree health benefits that it deferred to 2012. In the first quarter this year, it had a loss of $3.3 billion. Revenues were down 1.1%, not bad. But volume was down 6%. So it needs to get its costs in line—but as its quarterly report points out, “the return to financial stability requires legislation….”

Requires legislation. Even decisions normally made by middle management—such as product pricing, delivery schedules, location of retail outlets and distributions centers—have to be approved by Congress whose 535 agendas are focused on reelection and bringing home the bacon, and not on turning the Postal Service into a real business. And the situation is dire. The Postal Service announced that it might default on its health benefit pre-payments this year and that it might run out of cash. Not exactly the kind of Wall Street hype investors drool over.

So the French postal service announced its earnings today. Not only did La Poste, which includes the retail bank, Banque Postale, make money, but it also dressed up its numbers in Wall Street hype. How refreshing!

It had €21.3 billion in revenues in 2011, up 1.2%, with an “adjusted income” of—drum roll—€931 million, up 20.1%. It then posted a less “adjusted income” of €661 million, up 22.9%. And finally, well, it posted a net income of €478 million, down 13.1%. Higher postage and new services along with package delivery and express mail made up for a 3% decline in mail volume. Everything in its report had a positive twist.

Why can’t the USPS dress up its announcements like that? I’d suggest $1 billion in “adjusted income”; and after accounting adjustments, write-offs, and other charges, a net loss of $3.3 billion. We’d take the $1 billion and run with it. If the USPS ever wants to become a real American corporation, it will have to learn how to properly present its financials. Doom and gloom don’t inspire confidence. How come a French government-owned enterprise can speak our language better than we can?

La Poste is being privatized at a snail’s pace and against popular resistance. In 2010, it became a corporation with the state as the sole stockholder. The sale of a 2.99% stake is back on the table. Expect some strikes along the way.

Its subsidiary, Banque Postale, has over 11 million clients with bank accounts, out of a total population of 65 million! It recently added consumer credit and insurance products to its offerings, thus becoming more like its publically traded sisters. And, like them, it had loaded up on a secure investment, Greek bonds. So it announced that it would participate in the Greek debt swap. And it wrote down its holdings by €241 million.

And then, tucked into the report, is bailout queen Dexia, the Franco-Belgian mega-bank that collapsed and was bailed out in 2008 only to re-collapse and get re-bailed out in 2011. Among its many reckless acts, it had sold structured loans to French municipalities and communities that had no clue what they were getting into. These loans were based on the Swiss franc. When the franc skyrocketed, interest on these loans skyrocketed as well. Towns and communities could no longer pay. And voilà, toxic subprime à la française.

With €25 billion in loss guarantees from the taxpayer, the Banque Postale and the Caisse des Dépôts (France’s state-owned investment bank) took on these toxic loans. They will regroup them into a joint venture owned 65% by the former and 35% by the latter.

Dexia inflicted much more treacherous wounds on the tiny Kingdom of Belgium which guaranteed its debt, nationalized subsidiaries, and bailed out the rest of the financial sector. Exposure: €162 billion—41% of GDP! And it’s turning into a nightmare as Dexia announced monumental losses. But finally there is some resistance. Read…. Belgians Get Cold Feet As Bailout Queen Dexia Drags Them Toward Abyss.

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  5 comments for “Greek Bonds, Dexia Trash, French Postal Service, & Profit

  1. notahnwi
    Mar 9, 2012 at 3:02 am

    Having to take a 5-6 billion dollar charge every year since 2007 to satisfy the idiotic 75-year benefits pre-fund bill that was enacted 2006 is what's driving the USPS into the ground, not mismanagement. Who pre-funds medical pensions for *75* years?! Nuts.

  2. Joseph K
    Mar 9, 2012 at 3:06 am

    Interestingly La Poste recently hired a gentleman named Stephane Magnan as its Parisian based head of trading. Magnan was until recently head of Treasury and Financial Markets at Dexia in Paris and earlier was in that same function in Dexia's New York based trading operation. Magnan had a big hand in running Dexia into the ground and as with other executives at Dexia who had a big hand in ruining its balance sheet – including Bruno Deletre (now PDG of France's Credit Foncier), Daniel Ivanier (now head of International Regulatory matters at Societe General's investment bank), and Tom Ceusters (still head of Dexia's New York Treasury and Financial Markets!!) – has remained a player in the various interbank markets which he helped tank in 2008.

    So La Banque Postal has together with the Caisse des Depots acquired many of these assets from Dexia – all guaranteed by either the French or Belgian states. It must be nice to make so many mistakes so dearly costly but remain a player of essentially a giant hedge fund guaranteed by sovereigns.

    Not a big surprise that La Banque Postale dressed up its P&L and balance sheet a la Wall Street – pretty much par for the course for these guys.

    So much for the regulatory reform of the financial markets.

  3. Mar 9, 2012 at 6:47 am

    Joseph, great follow-up on these guys. That's how it goes with bankers. They always recycle themselves.

  4. Joseph K
    Mar 10, 2012 at 9:46 pm

    Thanks Wolf.

    But of course its actually much much worse than even indicated as all of these "gentlemen" were involved up to their necks in very shady dealings in the US, including potentially criminal tax fraud. This latter matter is especially egregious when one considers that, according the the Federal Reserve Board's own statements published by Bloomberg following its FOIA request, Dexia was the single largest recipient of the Federal Reserve Board's emergency liquidity programs and emergency borrowing at the Discount Window which were each put in place in September 2008 following Lehman's demise.

    In other words, at the very time Dexia, through the actions of these people, was fraudulently not paying taxes in the US, through the acts of these very same people, it requested capital from the US government in order to continue less than ethical business practices by these same people.

    And most if not all of these people are still playing with the public's money, albeit at Societe General and Credit Foncier and La Bacque Postale. And for those who do not understand, as Societe General does business in the US it still has access to the Fed's discount window and liquidity programs. This means that it is not only the Belgian and French taxpayer which is subsidizing these criminals but also likely the US taxpayers.

    Pretty amazing and brazen when you think about it.

  5. Wolf Richter
    Mar 11, 2012 at 3:22 pm

    Joseph – Thanks for this info. I hope all the world reads your comment. Amazing and brazen are fitting words!

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