SocGen Says Equities Revenue Improved After First-Half Implosion

(Bloomberg) -- Societe Generale SA said revenue at its equities division has been improving in the third quarter, after the struggling business drove the bank to its worst loss in 12 years in the first half.

A gradual recovery has been taking place since mid-May, when most European nations lifted pandemic-related lockdowns, SocGen said in a presentation on Thursday.

“We will have a much better-balanced breakdown” between fixed-income and equities revenue in the third quarter, Chief Executive Officer Frederic Oudea said in a webcast Thursday. Though revenue improved in the third quarter, it will remain below its 2019 level, he said.

SocGen’s equity-derivatives business, long considered a powerhouse for the lender, posted record losses in the first quarter after its highly complex products blew up when turmoil hit the market. Some of the bank’s trades relied on dividend payments, many of which were halted by companies around the world in response to the pandemic.

The unit’s revenues fell drastically in the first half, triggering a review that led to a 1.33 billion euro ($1.6 billion) charge. The bank’s second-quarter loss was the biggest since the one prompted by rogue trader Jerome Kerviel, putting pressure on Oudea to turn the lender around after a 60% slump in the shares this year.

Dividend Risk

The bank is working to transform its equity structured-products offerings to end their exposure to dividend risk, the CEO said. It also plans to offer more single-asset products, instead of ones with multiple underlying assets that create high correlation.

“Clients can accept slightly lower yields, in a world of zero percent rates, with us taking less risk,” he said.

The bank said its cost of risk for the entire year will be at the lower end of the previously announced range of 70 to 100 basis points. Its CET1 ratio will be at the higher end of the 11.5% to 12% range.

The bank also reaffirmed its objective to cut underlying costs to 16.5 billion euros in 2020 from 17.4 billion euros last year. The effort will continue beyond 2020, although the CEO didn’t set a medium-term objective.

Credit du Nord

The lender’s potential move to create a new bank by merging its retail network with the one at its subsidiary Credit du Nord is expected to contribute to the expense-reduction effort by unifying the networks’ IT systems and accelerating their digital strategies thanks to mutualised investments.

While domestic banking consolidation has started in neighboring countries, Oudea said it would much more complex in France because the market is concentrated and banks have large balance sheets.

Cross-border mergers, although more cumbersome, would be a good idea, the CEO said, affirming his previous comments on the possibility of such deals.

“If the conditions are there, we are one of the very few banks happy to look at whether there’s an opportunity,” Oudea said. “For the time being, our priority is, as I’ve said, a single one: Improve the share price, show that there is much more value than the current perception of the market.”

©2020 Bloomberg L.P.