SocGen Caps Bumper Quarter for Europe’s Banks as Worries Linger

Societe Generale SA and UniCredit SpA closed out a bumper quarter for European investment banks that fueled calls for a resumption of dividends and buybacks, even as regulators and some rivals warned of the impact of the pandemic’s second wave.

SocGen rebounded from its worst loss in 12 years with a third-quarter profit that was almost double analyst estimates, helped by improved trading revenue and lower provisions for bad loans. It was a pattern that held true for most of its peers, including Italy’s UniCredit SpA, which also posted better-than-expected earnings on Thursday.

Both have been among a growing group of banks pushing for a resumption of dividends, pointing to the relative calm over the summer months and the strength of their trading units. But in an acknowledgment that the fallout from the pandemic for banks is far from over, Germany’s Commerzbank AG warned bad loans could quickly rise as Europe enters new lockdowns and relief measures run out.

SocGen Caps Bumper Quarter for Europe’s Banks as Worries Linger

“We are still in a stage where we definitely don’t really know what’s going to happen,” Commerzbank Chief Financial Officer Bettina Orlopp said in an interview. “We will closely monitor over the next couple of weeks and months” how the outlook for bad loans evolves.

The warning came as Germany reported record new infections and England joined other European countries in entering a new, four-week lockdown. European banking regulators, who had been moving closer to lifting a de-facto dividend ban, are increasingly worried about the worsening economic outlook.

Investors punished Commerzbank, sending its shares down by the most in almost five months, while SocGen rallied as much as 6.5% and UniCredit gained as much as 2%. SocGen and other French lenders were among the worst-hit this year when the onset of the pandemic prompted dividend suspensions.

SocGen Caps Bumper Quarter for Europe’s Banks as Worries Linger

The third-quarter rebound is relieving pressure on Chief Executive Officer Frederic Oudea after a string of trading hits. Both equities and fixed income trading did better than expected, though the increase fell short of the gains at some rivals. Debt trading rose about 9% from a year earlier, compared with a 36% increase at BNP Paribas SA and a 25% jump across Wall Street. Equities trading revenue gained 5%, versus 15% at U.S. firms.

At UniCredit, CEO Jean Pierre Mustier raised his guidance for underlying profit this year and said he expects to distribute 50% of that with a mix of dividends and share buybacks starting in 2021 if regulators approve. Trading revenue rose about 10% from a year earlier.

But lenders that jettisoned their trading operations after the financial crisis had little to cheer last quarter, as the pandemic adds to already severe headwinds from negative interest rates. Profit and revenue at Commerzbank both came in below expectations as income from lending declined.

That was also the case at ING Groep NV, where profit missed estimates even as the Dutch lender set aside less money for bad loans. ING will cut 1,000 jobs by the end of 2021 and close all of its offices in South America and some in Asia amid the economic fallout from coronavirus.

Shares of ING slumped as much as 7.3%, the most since September.

Both ING and Commerzbank went through a management reshuffle this year, with the Dutch firm losing former CEO Ralph Hamers to UBS Group AG and Commerzbank CEO Martin Zielke stepping down under pressure from investors. Oudea and Mustier, by contrast, are among the longest-serving bank CEOs in Europe.

©2020 Bloomberg L.P.

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