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DE RUEHFR #1251 2581052
ZNR UUUUU ZZH
O 151052Z SEP 09
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7144
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 1183
RUEHBJ/AMEMBASSY BEIJING 2074
RUEHBR/AMEMBASSY BRASILIA 2303
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RUEHJA/AMEMBASSY JAKARTA 0726
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RUEHOT/AMEMBASSY OTTAWA 2336
RUEHSA/AMEMBASSY PRETORIA 1919
RUEHRH/AMEMBASSY RIYADH 0470
RUEHUL/AMEMBASSY SEOUL 1799
RUEHKO/AMEMBASSY TOKYO 3074

UNCLAS PARIS 001251 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB/IFD/OMA AND EUR/WE 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PREL FR
SUBJECT:  FRANCH BANKERS' PITTSBURGH NIGHTMARE 
 
¶1. (SBU) Meeting on the anniversary of the Lehman failure, leading 
French financiers told Ambassador Rivkin that capital requirements 
and accounting rules, rather than compensation, are the critical 
issues at the G20 Summit in Pittsburgh.  They are fearful that the 
G20 will stiffen both capital requirements and "mark-to-market" 
accounting rules as the solution to the financial crisis. 
BNP-Paribas CEO Baudouin Prot asserted that this combination would 
slow world economic growth for years and could stop the current 
recovery.  AXA CEO Henri de Castries stressed that banks could not 
increase capital and boost lending at the same time.  He pointed out 
that neither raising capital requirements nor applying 
mark-to-market addressed the failure of regulators "to do their jobs 
properly."  While they allowed that higher capital requirements are 
probably necessary, they insisted that even a phased approach would 
immediately be reflected in bank stock prices, making raising 
capital more difficult.  Prot said that European bankers supported a 
recent letter from the American Bankers Association to Secretary 
Geithner urging greater flexibility in mark-to-market rules. He 
claimed that the only player opposed to modulating mark-to-market 
rules is Goldman Sachs, "and they don't hold any loans."  The CEOs 
agreed that mark to market requirements were both procylical and 
increased volatility while inhibiting anything but short-term and 
very high quality instruments.  The bankers were also concerned 
about moves to focus regulation primarily on leverage ratios. 
Credit Agricole CEO Georges Pauget warned about the difficulty of 
comparing leverage ratios calculated under different accounting and 
market standards.  He said the treatment of derivatives in the U.S. 
for example, effectively doubled U.S. banks leverage ratios when 
cast according to EU standards. 
 
¶2. (SBU) On financial sector bonuses, the bankers stated that the 
essence of the Sarkozy proposals (basing bonuses on bank profit, not 
revenue; deferral of half of bonuses to later years, with 
"claw-back" provisions if profits prove ephemeral; and payment of 
large parts of the deferred payment in stock) stemmed from the 
French Banking Federation work on best practices.  De Castries said 
he the bonus standards were insufficient (and perhaps naove) and 
needed to be reinforced by the market.  Only if clients insist on 
behavioral change will it actually happen - and he said the 
insurance and finance conglomerate he leads is now refusing to do 
business with financial institutions whose compensation practices 
"go against long-term societal interests." 
 
¶3. (SBU) On the economy, they described the early signs of recovery 
around the world as "mechanical," driven by government stimulus 
rather than the health of the economy itself.  "American consumers 
are still not saving enough and Chinese savers are still not 
consuming enough," one observed.  The French economy has not been as 
badly hit thanks to a high consumer savings rate, low household debt 
and relatively less real estate market movement in recent years. 
Rothschild banker Gerard Worms stressed, however, that the French 
government deficit has jumped very sharply and will likely stay high 
"for years" and a number of basic economic reforms, including of 
labor markets, need to be carried further. 
 
¶4. (SBU) Comment:  French financiers feel vindicated by their 
comparatively strong performance over the last year in the face of 
global turmoil.  The group meeting the Ambassador (which also 
included JPMorgan and the Caisse des Depots) were genuinely 
concerned about a G20 outcome that cut the financing available for 
growth while increasing market volatility.  Their concerns seem in 
line with US views going into the London G20 Summit on the priority 
to recovery and growth rather than the EU focus on regulation. 
 
RIVKIN