Sunday 21 July 2019

SocGen hit as French banks suffer volatility

Revenue hit: Societe Generale, which has its headquarters in the La Defense business district in Paris, is the latest French bank to suffer poor results
Revenue hit: Societe Generale, which has its headquarters in the La Defense business district in Paris, is the latest French bank to suffer poor results

Geraldine Amiel and Fabio Benedetti-Valentini

Societe Generale (SocGen) didn't escape a dramatic reversal of fortune for French banks after markets turned volatile, warning that fourth-quarter trading revenue dropped about 20pc.

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

SocGen also said that fourth-quarter earnings will be hurt by a €240m 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.

CEO Frederic Oudea has also shaken up management and hired senior derivatives specialists from Bank of America to help reboot trading.

Retail banking is expected to be "solid" with French operations in line with guidance, SocGen said yesterday.

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, the biggest, is closing its proprietary trading (trading for the bank's own gain) unit, while Natixis said in December it took a €260m hit from hedging Asian equity derivatives.

The French banks aren't alone in suffering from wild markets that kept many clients on the sidelines in the fourth quarter. JP Morgan and Goldman Sachs both missed analyst estimates for trading revenue, while Citigroup reported a 21pc slide in fixed-income trading. Deutsche Bank, 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.

Bloomberg

Bloomberg

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