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French prosecutors raid SocGen and others in connection with 'CumCum' scandal

By Geoffrey Smith

Investing.com -- French bank stocks fell on Tuesday after police raided five institutions in connection with a six-year investigation into tax fraud in stock trading.

The banks raided were BNP Paribas (EPA:BNPP) and its brokerage arm Exane, along with Société Générale (EPA:SOGN) and Natixis. The French offices of HSBC Holdings (NYSE:HSBC) were also searched, according to a statement by the financial prosecutor's office.

Le Monde reported that 160 officials from the Finance Ministry had been involved in the searches, along with further officials from Germany.

The raids are in connection with what France calls the "CumCum" scandal, in which banks engaged in artificial stock trading to defraud the tax authorities of payments linked to dividends. Under "CumCum," investors would briefly sell stocks to non-residents at the moment they were due to pay dividends in order to avoid being taxed on them. They would then reverse the trade, splitting the tax savings between them.

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The strategy was widely seen as a less risky one than the "CumEx" strategy that has been at the heart of a similar scandal in Germany. Most of the country's largest banks including Deutsche Bank (ETR:DBKGn) and Commerzbank (ETR:CBKG) have been implicated but deny wrongdoing. Various media estimates put the damage to the German government at over €35 billion (€1 = $1.0838). Dutch banks including ABN AMRO (AS:ABNd) have also acknowledged undertaking such trades.

SocGen stock was the worst affected by the news, falling 1.9% in Paris. BNP Paribas stock was down by 0.7%, ironically less than Deutsche, which fell 1.5%. Deutsche Bank has struggled to shed its image as a likely source of volatility despite massively de-risking its balance sheet since 2018. Concerns about its exposure to commercial real estate triggered a sector-wide selloff on Friday, which only partly unwound on Monday as nerves calmed.

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