SocGen Boosts Capital Strength as Oudea's Revamp Takes Hold
SocGen Delivers on Capital as Oudea Seeks to Dispel Concerns
(Bloomberg) -- Societe Generale SA Chief Executive Officer Frederic Oudea boosted the bank’s capital strength and outperformed most rivals in equities trading as the bank’s largest restructuring in years takes shape.
The French lender -- which exceeded its capital requirement by the narrowest margin of the eurozone’s top 10 listed banks last year -- achieved its 2020 target for a CET1 ratio of 12% ahead of time and said it’s on track to keep the metric at that level. The increase may alleviate concerns among analysts who had suggested the bank may need to raise capital.
The business of buying and selling equities and providing services to hedge funds -- a traditional strength -- also did better than most peers and beat analyst estimates, though still fell compared with a year earlier. Declines in fixed-income trading in the second quarter were also less than some analysts had been expecting.
Chief Executive Officer Frederic Oudea, the longest-serving CEO of a top European bank, is cutting 1,600 jobs and paring risk after giving up his main mid-term targets for growth and profitability. He’s seeking to preserve the bank’s leadership in businesses such as equity derivatives while strengthening capital and exiting or refocusing some fixed-income activities.
The shares gained as much as 5.9% in Paris trading and were up 4% as of 12:52 p.m. local time.
Trailing Shares
The stock has been trailing those of larger rival BNP Paribas SA, suggesting stockholder concern about the turnaround. Some analysts have said that ongoing turnover at the trading unit might dent revenue and that the changes come with high risks. In February, SocGen replaced the markets unit’s head and the head of the fixed-income business is also leaving.
Here are some more key highlights from SocGen’s first-quarter results:
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Second quarter revenue from fixed-income trading fell almost 10% to 524 million euros, though analysts had expected a bigger decline. Equities trading held up better, with the 6.7% slightly ahead of Wall Street peers. The French lender is known for its equities derivatives strength and last year bought Commerzbank AG’s equity markets and commodities unit. It could also be a potential beneficiary from Deutsche Bank’s withdrawal from equities.
‘Strong Leadership’
“We want to focus in the areas where we have a strong leadership,” Oudea said in a Bloomberg Television interview. “I see opportunities in this market where some banks are withdrawing from certain activities. I meet with a lot of clients and they want a few European banks alongside.”
The strengthening capital means “there is no reason to cut the dividend,” Oudea said. The dividend was set at 2.20 euros for 2018 at the bank’s annual general meeting in May.
SocGen’s results add to signs that European lenders -- at least on the trading side -- didn’t suffer much more than Wall Street rivals during a quarter that’s set to cap one of the worst first halves for securities trading since the financial crisis. BNP Paribas on Wednesday surprised markets with a second straight quarterly gain in fixed-income trading while Credit Suisse posted a 6% increase in fixed income and only a slight decline in equities.
SocGen said it’s more than half way through a plan to reduce risk at its market business and has cut about 4.9 billion euros of the targeted 8 billion euros of risk-weighted assets. Oudea reorganized his top management and hired senior traders from Bank of America Corp. last year to help reboot the global-markets business after the shock departure of investment-banking boss Didier Valet.
SocGen has been scrambling to reduce or exit some trading activities to help absorb the effect of a regulatory review and shore up capital, pledging to accelerated disposals to bolster its funding levels. Analysts such as JPMorgan Chase & Co.’s Kian Abouhossein had argued that the bank should slash its dividend by two thirds to ease concern about capital.
The bank had been working with McKinsey & Co. to find ways to bolster its CET1 ratio as it confronts the higher regulatory requirements, a person familiar with the matter said in May. Oudea had said he wanted to reach the 12% target for the ratio as soon as possible, tapping the consultancy firm for the review known internally as “Optica.”
--With assistance from Anne Swardson, Caroline Connan and Macarena Munoz.
To contact the reporter on this story: Dale Crofts in Zurich at dcrofts@bloomberg.net
To contact the editor responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net
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