SocGen Posts Rebound With Best Equities Revenue Since 2015

Societe Generale SA turned in its best equities-trading performance since 2015, rebounding from a disastrous quarter a year earlier and providing relief to Chief Executive Officer Frederic Oudea as he prepares to unveil his new investment bank strategy.

Revenue at the equities business -- hit last year by market volatility -- was the high point in a strong trading quarter for the French bank, soaring to 851 million euros ($1.02 billion) compared with analyst estimates of 573 million euros. Fixed income revenue and provisions were also better-than-expected.

European and Wall Street banks reported their best equities revenue in years after booming stock markets and retail-investor volatility during the height of the pandemic continued into the new year. The rally is easing pressure on Oudea after the bank’s first annual loss in more than three decades last year, prompting him to reshuffle top management and pledge buybacks.

SocGen Posts Rebound With Best Equities Revenue Since 2015

Market conditions were very positive in the beginning of the year, and there’s always a seasonality,” Oudea said in an interview with Bloomberg TV on Thursday. “But we are confident for the overall year.”

SocGen rose as much as 4.5% in early Paris trading and gained 4.3% as of 9:05 a.m., taking this year’s increase to about 45%.

Equities revenue was hammered in the first half of 2020 by losses on structured products hurt by companies canceling dividends, triggering a review and a 684 million-euro writedown at the unit. SocGen is cutting about 450 million euros of costs until 2023 at the business and has designed new products. Still, its equities performance since then has been uneven, with gains in the third quarter giving way to declines in the fourth.

The first-quarter performance of the equities unit “shows that the franchise is really intact, and that we made the right decision to redesign the portfolio of structured products,” Oudea said. The bank plans a group-wide strategic plan in the first half of next year once there’s greater clarity on the economic recovery, he said.

SocGen Posts Rebound With Best Equities Revenue Since 2015

In a bid to boost profitability, he’s started cutting hundreds of jobs at the investment-banking unit and merged the domestic retail networks to reduce the number of branches. Last month, SocGen also agreed to sell its 170-billion euro asset management arm Lyxor to Amundi for 825 million euros. The deal accelerates the bank’s exit from asset management, even as the sector shows higher valuation multiples, making it a growth priority for some peers.

French rival BNP Paribas -- which also saw equities income erased a year earlier -- posted its best quarter from that business since 2018, though couldn’t match SocGen’s performance in fixed income, where it missed estimates. On Friday, Barclays Plc’s equities unit reported a 65% year-on-year jump in equities revenue, making it its best quarter ever.

Elsewhere, the implosion of Bill Hwang’s Archegos Capital Management spoiled what would otherwise have been strong trading performances by the Swiss banks. U.S. banks’ equity-underwriting fees were almost quadruple their first-quarter 2020 level in aggregate, according to Bloomberg Intelligence, marking the third quarter in a row of growth more than doubling.

SocGen’s investment bank saw its revenue soar 54% to about 2.5 billion euros in the first three months topping analysts’ estimates. The division’s new head, Slawomir Krupa, will update strategy on Monday, just as the unit is dealing with a round of job cuts announced in November.

During the first quarter, SocGen also joined other European lenders in posting lower provisions and set aside 276 million euros to cover potential bad loans, less than the the 715.8 million euros that analysts anticipated. The lender expects its cost of risk for the year at between 1.6 billion euros and 1.85 billion euros, or about half its 2020 level.

Many big European lenders have bolstered profit by stashing less money for doubtful loans than last year or by freeing up reserves. Deutsche Bank AG, Banco Santander SA and Lloyds Banking Group Plc are among the firms to argue that rosier economic prospects justify such moves.

SocGen’s CET1 ratio, a key measure of its capital strength, rose to 13.5%, above analysts estimates. The bank expects the Lyxor deal to have a positive impact of about 18 basis points on its core capital ratio, while share buybacks should have a negative impact of 13 basis points.

Other highlights of SocGen’s earnings:

  • Revenue EU6.24b vs EU5.89b est.
  • Global Markets EU1.65b vs. EU1.31b est.
  • Fixed Income & Currencies EU625m vs. EU569.7M est.
  • Equities & Prime Services EU851m vs. EU572.7M est.
  • CET1 Ratio 13.5% vs. 12.99% est.
  • Net income EU814m vs. EU258.3M

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