SocGen's Trading Slide Adds to Setbacks for French Banks

(Bloomberg) -- Societe Generale SA capped a dramatic reversal of fortune for French banks after markets turned volatile, warning that fourth-quarter trading revenue dropped about 20 percent.

France’s third-largest bank said Thursday that “challenging” conditions also led to a decline of about 10 percent in annual revenue from its markets units. Shares of the bank, which will report earnings in February, fell as much as 5 percent in Paris trading.

SocGen’s troubles add to a grim quarter for French banks, once renowned for their prowess in complex derivatives and now struggling to navigate increasing risk as the trade war and slowing economies whipsaw markets. BNP Paribas SA, the biggest French bank, is closing its proprietary trading unit, while Natixis SA said in December it took a 260 million-euro ($296 million) hit from hedging Asian equity derivatives.

“The magnitude of the decrease is sizable and adds risk to the delivery of the plan target in the division,” Citigroup analysts including Azzurra Guelfi wrote in a note to investors. That’s even as “the market might have started to incorporate” weakness in corporate and investment banking, after disclosures by peers, they wrote.

SocGen also said fourth-quarter earnings will be hurt by a 240 million-euro ($273 million) charge, under new accounting rules, on the disposal of Societe Generale Serbia, a stake in La Banque Postale Financement and other sales.

The Serbian sale, announced in December, was part of a strategy of simplifying the bank’s structure and focusing on markets where it can take advantage of scale. Chief Executive Officer Frederic Oudea has also shaken up management and hired senior derivatives specialists from Bank of America Corp. to help reboot trading.

SocGen's Trading Slide Adds to Setbacks for French Banks

Retail banking is expected to be “solid” with French operations in line with guidance, SocGen said Thursday.

The French banks aren’t alone in suffering from wild markets that kept many clients on the sidelines in the fourth quarter. JPMorgan Chase & Co. and Goldman Sachs Group Inc. both missed analyst estimates for trading revenue, while Citigroup reported a 21 percent slide in fixed-income trading. Deutsche Bank AG, likewise, has also hinted at a weak quarter.

The SocGen charge is the result of accounting under the IFRS 5 standard for the lender’s sales of Societe Generale Serbia and other stakes. Retail banking is expected to be “solid,” with French operations in line with guidance, the bank said. It also expects a “significant increase in market risk weighted assets,” a metric that determines how much capital a bank must hold.

SocGen was down 3.8 percent at 29.07 euros as of 11:36 a.m. in Paris trading.

The bank said it expects the pro-forma CET1 capital ratio to be between 11.4 percent and 11.6 percent, in line with its target for 2020. The board will propose a stable dividend of 2.20 euros for 2018, hitting the floor it had promised in its strategic plan, and will offer a stock alternative.

SocGen won’t give any detail on the impact on overall revenue before fourth-quarter earnings in February, a spokesman said.

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