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Innovest Downgrades Societe Generale from AAA to A
Innovest Downgrades Societe Generale from AAA to A
Published 02-01-08
Submitted by Innovest Strategic Value Advisors, Inc.
February 1, 2008 "“ Last Week Societe Generale(SocGen) revealed that a rogue trader had hidden a USD7.1bn loss. The incident sheds light on a significant flaw in the company's risk management and due diligence systems and we are downgrading the company from AAA to A. The following scores have been lowered at SocGen to reflect recent events:
Ratings and research reports from Innovest Strategic Advisors analyzing the environmental, social and governance performance of over 1,750 companies and their industries, including the Global 100 Most Sustainable Corporations, is available through Innovest's partner CSRwire at www.csrwire.com/reports/independent
What does this say about the banking sector as a whole?
The incident at SocGen, while it illuminates a severe risk management deficit at the bank, could have happened at many other banks. An investor in any industry has to take a leap of faith that the firm discloses all materially significant information about its performance and risk management systems. But for banks, especially investment banks, the investor's leap is especially broad. Because banks are not required to disclose the vast majority of their trades, loans or proprietary investments, it is nearly impossible to verify whether management is transparent about the quality of its risk management. Innovest tries to get around this challenge by looking at all publicly filed loans and investments that a bank has been involved in and cross-check whether they comply with the bank's own stated risk management standard. But, admittedly, we still only have access to a limited cross-section of the assets that constitute a bank’s balance sheet.
The incident at SocGen reinforces a key lesson emerging from the subprime crisis: that many banks (and bankers) take advantage of the secrecy they are granted to pursue unsustainable, short term gains that erode long term investor returns. This lesson is starkly embodied with the example of SocGen, but also with the writedowns at Citi, UBS, and Merrill. We believe that our methodology is ahead of its peers in terms of detecting where there is a systemic disconnect between ESG policy and actual performance. But detecting fraud is even more of a challenge for us than for SocGen's own risk management division.
About Innovest
Innovest Strategic Value Advisors is an internationally recognized investment research and advisory firm specializing in analyzing companies' performance on environmental, social, and strategic governance issues, with a particular focus on their impact on competitiveness, profitability, and share price performance.
Innovest currently has offices in New York City, Toronto, San Francisco, London, Paris, Sydney, and Tokyo.
Innovest Strategic Value Advisors, Inc.
Innovest Strategic Value Advisors, Inc.
Innovest Strategic Value Advisors is an internationally recognized investment research and advisory firm specializing in analyzing companies’ performance on environmental, social, and strategic governance issues, with a particular focus on their impact on competitiveness, profitability, and share price performance. Innovest currently has offices in New York City, Toronto, San Francisco, London, Paris, Sydney, and Tokyo.
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