Societe Generale beats estimates as traders post bumper quarter

Societe Generale posted a surge in debt trading in the third quarter and eked out a gain in equities where peers struggled, helping drive net income almost 50 per cent higher than analyst estimates. 

The Paris-based bank’s fixed-income and currencies trading revenue jumped 34 per cent in the three months through September, beating the result posted by rival BNP Paribas and 23 per cent average gain across major Wall Street banks. An unexpected 1 per cent increase in equities trading helped propell net income to 1.5 billion euros, compared with estimates of just over 1 billion euros. 

For the European banking sector, gains in debt trading and lending revenue last quarter helped offset declines in trading stocks and dealmaking. Aided by sharp interest-rate increases by central banks, Deutsche Bank Group said it delivered its best profits in more than a decade, while UniCredit bucked recession fears by raising its outlook. 

The third quarter was “marked by increasing revenues, continued control of operating expenses and a contained cost of risk, while maintaining a prudent provisioning policy,” SocGen chief executive officer Frederic Oudea said in a statement. 

The bank is in the middle of a leadership transition, with Oudea set to be replaced by Slawomir Krupa next year. The bank, which faced a multibillion euros-euro hit earlier this year after its exit from Russia, in August outlined new revenue targets and pledged higher profitability as rising interest rates and a global trading rally boost revenue.

The lender is also merging its domestic networks Societe Generale and Credit du Nord, a strategic shift that involves thousands of job cuts. The bank confirmed that the legal completion will take place on Jan 1.

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The appointment of investment-bank chief Krupa is expected to set in train a broader management reshuffle as the 15-year reign of Oudea ends with high-profile departures. Late Thursday, the lender said it appointed Stephane Landon as chief risk officer to replace departing Sadia Ricke.

In parallel with peers, SocGen has reaped the benefits of central banks’ rates increases with higher revenue stemming from its lending operations. The lender’s international retail unit saw its revenue rise 6 per cent. However, revenue at its retail networks in France, where fixed-rate mortgages make it harder for banks to get an immediate boost from higher rates, only increased 0.5 per cent.

SocGen’s historically key equities trading desk saw its revenue rise to 806 million euros, higher than analysts expected. Its performance outstripped the 13 per cent average decline across major Wall Street major banks.

The bank’s smaller fixed income trading unit saw its revenue rise to 538 million euros, as volatility spurred by rising interest rates boosted the performance across the sector in the third quarter. The performance at the bond trading unit came in just behind Deutsche Bank’s 38 per cent jump. 

The lender said it expects the underlying cost to income ratio to be below 64 per cent for 2022, having previously forecast it at between 64 per cent and 66 per cent. The bank set aside 456 million euros to cover potentially souring loans, lower than analyst estimates. 

The relatively modest provisioning is in line with regional peers, which have adopted a sanguine outlook despite the looming economic recession and risks related to the war in Ukraine. That’s gained the attention of regulators, who have argued for restraint in bonuses and investor payouts. BLOOMBERG