BNP Paribas, SocGen Tumble After Missing Rebound in Trading

(Bloomberg) -- BNP Paribas SA and Societe Generale SA missed out on the trading gains that boosted earnings at some of their U.S. and European rivals in the first quarter, sending their shares tumbling.

Trading income at BNP Paribas, the largest French lender, fell 15 percent as a drop in sales from fixed-income, currencies and commodities outweighed a gain in equities, the Paris-based bank said Friday. At Societe Generale, stock and bond trading both dropped.

BNP Paribas Chief Executive Officer Jean-Laurent Bonnafe, who’s counting on growth at the corporate and investment bank to meet goals for revenue and profitability, blamed lackluster client activity in Europe for the debt-trading slump. Societe Generale’s results suffered as it worked to restructure top management after the surprise exit of investment-banking head Didier Valet. A stronger euro also weighed on earnings.

“It was a complicated quarter,” said Alex Koagne, an analyst at Natixis who has buy ratings on both stocks. “The dollar effect was negative, BNP and SocGen are strong in structured activities, which didn’t perform well.”

Shares of BNP Paribas fell as much as 3.5 percent in Paris, while Societe Generale tumbled as much as 7.4 percent, the most in almost two years.

Step Backward

BNP Paribas is pushing to become one of the top three European investment banks, partly by growing in Germany, the U.S. and Asia as competitors retrench. It took a step backward in the first quarter. Debt trading fell by almost a third, even as a pickup in volatility drove demand for equity derivatives, lifting stock trading by 19 percent.

At Societe Generale, a global leader in derivatives on stocks, revenue from equities and prime services unexpectedly fell 11 percent, while debt trading plunged by almost a third.

Societe Generale’s first-quarter trading performance was the worst among global banks that have reported results, data compiled by Bloomberg show. BNP’s was the third-worst behind Deutsche Bank AG.

The banks’ trading performance also lagged behind U.S. peers. A 32 percent jump in equities revenue propelled growth in the quarter at the top five Wall Street firms including JPMorgan Chase & Co. and Goldman Sachs Group Inc., while fixed-income trading at the largest U.S. banks was little changed.

Many of Societe Generale’s rivals reported increases in revenue from equity derivatives, complex products that enable clients to wager on stocks or protect their holdings and which tend to be a key revenue generator for the French bank. UBS Group AG, one of its biggest competitors in this industry, posted an increase in stock-trading revenue of about 18 percent to 1.1 billion Swiss francs ($1.1 billion) and Chief Financial Officer Kirt Gardner said the jump was “mostly in derivatives.”

SocGen Shake-Up

SocGen is revamping top management after Valet, an 18-year veteran at the French bank, stepped down in mid-March. The departure of the executive -- widely seen as a potential successor to Frederic Oudea as CEO -- was part of an effort to settle a U.S. Justice Department investigation into the bank’s alleged manipulation of interest-rate benchmarks, people with direct knowledge of the matter said at the time.

The French bank named Severin Cabannes to take over Valet’s duties. He was appointed alongside three new deputy CEOs in a shake-up late Thursday as Oudea seeks to revive growth and put an end to the bank’s lingering legal issues.

Others named in the shuffle were Chief Financial Officer Philippe Heim, who was promoted to deputy CEO responsible for international retail operations. Diony Lebot, currently chief risk officer, will be elevated to deputy CEO in charge of control functions, with Philippe Aymerich overseeing French retail-banking activities.

Cabannes, in a Bloomberg Television interview on Friday, said he’s committed to raising return on equity at the investment-banking business.

It’s near an agreement to pay as much as $1 billion to resolve two investigations -- into the rigging of benchmark interest rates and allegations of bribery in Libya -- people familiar with the matter said earlier this week.

SocGen said Friday it expects to resolve the probes in a matter of days or weeks and has “good visibility” on the financial impact. It’s set aside about 1 billion euros ($1.2 billion) for the two cases, within its 2.3 billion euros of provisions for legal risks.

©2018 Bloomberg L.P.

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