SocGen to Return Capital After First Losing Year in Decades

Societe Generale SA vowed to return capital to investors even as it ended its first losing year in more than three decades with a slump in trading.

In contrast to double-digit gains at Wall Street peers, SocGen saw equities revenue -- its traditional strength -- fall 7% from a year earlier and fixed-income trading drop 16%. Net income in the fourth quarter fell less than analysts had expected and the Paris-based firm pledged to return about 940 million euros ($1.14 billion) to investors this year if regulators let it.

SocGen to Return Capital After First Losing Year in Decades

Chief Executive Officer Frederic Oudea is trying to turn around SocGen after trading losses in the wake of the pandemic exacerbated the impact of rising bad loans and negative interest rates. He’s reducing risk, cutting costs and accelerating a move toward simpler products at the markets unit.

The longest-serving CEO of a major lender in the European Union, the 57-year-old has seen shares of SocGen slump by about three-quarters since he took over in 2008. The firm now has a market value of about 15 billion euros, less than Deutsche Bank AG, which has also suffered a long decline from its peak.

SocGen rose 3.6% at 12:09 p.m. in Paris trading, as the bank said it would propose a dividend of 55 euro cents a share at its next annual meeting, equal to a 470 million-euro payout. It plans to return a similar amount in the form of share buybacks in the fourth quarter, provided that the European Central Bank lifts its recommendation to cap shareholder returns.

William Kadouch-Chassaing, SocGen’s head of finance, said in an interview that he saw some improvement at the start of this year, including at the investment bank.

SocGen to Return Capital After First Losing Year in Decades

“Things are definitely starting off the year positively” at the unit, he said in an interview with Annmarie Hordern on Bloomberg TV. “Across the board, in retail we still see an impact of the confinement, but it’s holding well.”

Key figures from SocGen’s fourth quarter:

  • Revenues EU5.84 billion vs analyst estimate of EU5.78 billion
  • FIC trading EU414 million vs EU515 million estimate
  • Equities trading EU593 million vs EU497 million estimate
  • Provision for loan losses 689 million euros vs 954 million euros estimate

In a bid to boost profitability, Oudea is cutting hundreds of jobs at the investment-banking unit, merging the domestic retail networks to reduce the number of branches and looking to sell its 160-billion euro asset management arm Lyxor. He’s also ousted two of his top deputies.

SocGen booked 210 million euros in charges in the fourth quarter to account for restructuring measures. The costs are adding to a rising bill for souring loans in the wake of the coronavirus pandemic. SocGen set aside 689 million euros for that purpose in the quarter, bringing the total for the past year to 3.31 billion euros. Such provisions should decline this year, it said.

Rising charges and a poor trading performance resulted in a 258 million-euro loss for the year, the first in Bloomberg records going back to 1988. Kadouch-Chassaing said he couldn’t say when the 157-year-old bank last posted an annual loss.

While rivals had to contend with similar challenges, they have been able to rely on their investment banking units to make up for it. In Germany, Deutsche Bank just posted its first annual profit in six years as trading business benefited from a broad-based market rally.

The slump at SocGen’s equities desk contrasts with a 35% jump in revenue at the biggest Wall Street banks. In fixed-income trading, Wall Street on average reported 10% higher revenue, and French rival BNP Paribas SA saw debt trading increase 22%. At Deutsche Bank, it was a plus of 17%.

Despite the underperformance, SocGen has been among the most vocal in pushing back against the ECB’s decision to cap payouts, with Chairman Lorenzo Bini Smaghi saying he didn’t see a reason why banks in Europe should be treated differently to counterparts in the U.K. or Switzerland.

©2021 Bloomberg L.P.

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