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Risk Quantum finds insights in data. The service tracks the public disclosures of over 120 banks, funds, insurers, corporates, and central counterparties – as well as reports from prudential and markets regulators – in Asia, Europe and North America.

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Holding back the profits

Societe Generale holds back a huge amount of profits on hard-to-value derivatives, Risk Quantum analysis shows. Banks typically book sales of structured products and complex derivatives at their transaction price. Any profits implied by the seller’s valuation of the trade are deferred and then slowly transferred to the income statement over time. The amount of ‘day-one’ deferred profit and the rate at which this is recognised on the income statement is determined by accounting methods unique to each bank. Of the large European structured product dealers followed by Risk Quantum, Societe Generale has routinely deferred the most profits, with €1.35 billion ($1.54 billion) placed in its valuation reserve as of end-June. BNP Paribas had €661 million deferred, Deutsche Bank €520 million, UBS €236 million (Sfr274 million), Credit Agricole €72 million, and HSBC €68 million.

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