Fabrice Drouin Ristori : Mr. Chevallier, thank you for this interview. Before we talk about the banks’ situation in France, could you quickly introduce yourself?

Jean-Pierre Chevallier : As an associate professor, I mostly taught financial analysis at the University of Nice. I am now retired and continue to work freely as a contrarian business economist/monetarist/behaviorist, and I am continuing with my independant proprietary financial analyses.

FDR : You published a series of articles these last few weeks on you website Chevallier.biz analysing the financial results published by certain banks in France and showing risks to their own stability. Can you tell us on what signals or ratios you are basing your conclusions?

Jean-Pierre Chevallier : I am basing my conclusions on the analysis tools that Alan Greenspan had the BRI adopt in the ‘80s, which are the Core Tier 1 ratio or its reverse, better known as leverage, which is the multiple of the debt total on the amount of unencumbered capital.

In the ‘80s Alan Greenspan thought that banks should have a Core Tier 1 ratio above 8%, or leverage below 12.5 (the total of a bank’s debt must not exceed by more than 12.5 times the amount of its unencumbered capital).

Following the later financial turmoil, he upped his requirements to a Core Tier 1 ratio of 10%, or leverage below 10.

FDR : This is not the first time you question the solvability of the banks, since you started talking about it in 2011, which actually brought you to be condemned, along with another american financial analyst, Mike Shedlock, by the AMF on Novembre 7, 2013. You were found guilty, and I quote, of « having published inexact information on this bank’s level of debt ». Seeing that you’re still publishing on the matter, in spite of your condemnation, do you have any precisions, or new light, regarding this condemnation and the solvabiity of french banks?

Jean-Pierre Chevallier : The AMF accuses me of having dared to publish in 2011 that Société Générale had a Core Tier 1 ratio of around 2%, or a leverage of 50, which it considers being inexact information, while the bank was pretending its ratio was over 10%. But, in its last report in 2013, Société Générale published for the first time its real ratio of 3.5%, which perfectly confirms that the number I used in 2011 was showing the real picture, whereas the bank was not publishing real numbers on its debt level, or inexact information.

FDR : Do you think these prudential indebtedness rules are followed by these banks?

Jean-Pierre Chevallier : No. None of the large banks showing systemic risks is abiding by these prudential rules, as set out by Alan Greenspan. Only a few get close, particularly the large U.S. banks.

FDR : Why aren’t these rules applied?

Jean-Pierre Chevallier : Implementation of these prudential rules set by Alan Greenspan would force all the large banks to considerably re-capitalise themselves, or to sell enormous amounts of assets, and the bankers aren’t ready for that.

FDR : In France, what banks do you think are the most exposed, and why?

Jean- Pierre Chevallier : The worst one is Société Générale with real leverage of 38, equivalent to a Core Tier 1 ratio of 2.6%, according to its own 2013 annual report, because it is way under-capitalised.

FDR : Since we hear more and more of « preventive » bank failure, do you think that the looting of the savers’ bank accounts is a risk in France?

Jean-Pierre Chevallier : Yes... this has already been done in Cyprus. As little as several banks are abiding by the prudential indebtedness rules, this is becoming more and more probable.

FDR : How would you advise depositors to protect themselves against this risk?

Jean-Pierre Chevallier : There is only one french bank, on the national level, that abides by all the prudential indebtedness rules : the Martin-Maurel bank.

HSBC is one of the safest banks, along with BBVA and Standard Chartered, but these two are less convenient, having few branches.

Risk is high, in any case, for any deposit above 100,000 euros. Let’s not forget that, in French law, banks wield much power. In particular, titles owned by their client are not entirely theirs : banks consider themselves to be the real owners of said titles. In case of forced selling, the bank could sell its clients’ titles, and the clients would only obtain a financial counterparty for the value of those titles when ceded.

FDR : Thank you for having taken the time to answer my questions.