SocGen Rebounds From Losing Run After Equities Trading Gains

Societe Generale SA rebounded from its worst loss in 12 years with a third-quarter profit that was almost double analyst estimates, relieving pressure on Chief Executive Officer Frederic Oudea after a string of trading hits.

The French lender reported net income of 862 million euros ($1 billion) after losing about 1.6 billion euros in the first half. Revenue at its key equities business almost quadrupled from the previous quarter, and the bank joined other European lenders in setting aside significantly less than expected to cover bad loans.

SocGen Rebounds From Losing Run After Equities Trading Gains

The results break a tough losing streak for Oudea, who reshuffled top management in August after the bank’s worst quarter since since rogue trader Jerome Kerviel caused a record loss in 2008. Oudea is now reducing risk and accelerating a move toward simpler products at the investment bank, while trying to defend SocGen’s leading position in equity structured products.

SocGen surged in early Paris trading, rising as much as 6.5% and up 5.3% as of 9:05 a.m. local time.

Both equities and fixed income trading did better than expected, though the increase fell short of the gains at some rivals during a period of big gains for Wall Street banks. Debt trading rose about 9% from a year earlier to 569 million euros, compared with a 36% increase at rival BNP Paribas SA and 25% jump across Wall Street. Equities trading revenue gained 5%, versus a 15% gain at U.S. firms.

Third-quarter highlights:

  • Net income EU862m vs EU449m estimates
  • Revenue EU5.8b vs 5.6b estimates
  • Equities revenue EU531m vs EU402m estimates
  • Provisions EU518m vs EU950m estimates
  • Sees full year cost of risk about 70 basis points

Equities revenue was hammered in the first half of 2020 by losses on structured products that were hurt by companies canceling dividends. Those complex trades triggered a review and a 684 million-euro writedown at the unit. SocGen is now seeking to cut about 450 million euros of costs until 2023 at the business and is designing new structured-products, offering lower exposure to dividend risk. It’s also looking to market more single-asset products, instead of ones with multiple underlying assets that create high correlation and the bigger risk of losses.

“We are effectively adjusting our risk appetite on our investment solutions,” Oudea said in a Bloomberg TV interview on Thursday. “I’m confident that quarter after quarter we will see the results of that policy with resilient contribution of our markets activity, as reflected in the third quarter.”

Oudea is also seeking to boost performance ahead of a new strategic plan, set to be unveiled in early 2021. SocGen is assessing the possibility of merging its own retail network with that of its Credit du Nord subsidiary in a move that would create a 10-million client bank. After a yearlong strategic review, the bank is also said to have decided to sell its asset management arm Lyxor, Bloomberg News has reported.

Still, SocGen, once considered a potential consolidator in Europe, is now perceived as a potential prey after its stock lost almost 60% so far this year. It’s among lenders across the continent seeking to keep investors onside by pushing for a return to paying dividends after a de facto ban from the European Central Bank, which is seeking to retain capital within the banking system.

SocGen chairman Lorenzo Bini Smaghi has warned that the ban risks rendering banks non-investable. The bank said it posted a dividend provision of 21 cents a share in the first nine months of the year, corresponding to 50% of underlying group net income in that period.

Other takeaways from third-quarter earnings:

  • French retail banking net revenue EU1.84b vs estimate of 1.8b
  • International banking & financial services net revenue EU1.89b vs estimate of 1.87B
  • Global banking & investor solutions net revenue EU2.03b vs estimate of 1.93B
  • CET1 ratio 13.2% vs estimate of 12.60%

©2020 Bloomberg L.P.

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