Market will overcome SocGen fraud news

As news of a €5bn fraud at the heart of France's second largest bank shocks the already battered banking sector, David Moss, Director, European equities at F&C, believes the impact is likely to be short-lived.

"What we are witnessing here seems to be one bank's failure to have adequate individual controls in place," he said.

While the announcement will undoubtedly cause investors to be nervous about other banks with large trading operations – with the sector's full year audited accounts due soon – Moss doesn't expect this development to have a significant impact on the sector's valuations. "If we look at the example of Allied Irish, who suffered a large trading loss in its US operations some years ago, this had little impact on other banks valuations at the time," Moss commented.

"Arguably, one could make the point that the reason why investment banks generally trade at lower valuations than their retail peers is that investors are aware of the risks inherent in having a large portion of earnings from trading-type operations, as we have seen with during the whole sub-prime crisis," he said. "Currently investment bank valuations already discount large losses. The difference with Société Générale is the source of the losses."