SocGen rebounds from losing streak with equities trading gains

[PARIS] Societe Generale (SocGen) 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 (S$1.37 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.

The results break a tough losing streak for Mr 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. Mr Oudea is now reducing risk and accelerating a move towards simpler products at the investment bank, while trying to defend SocGen's leading position in equity structured products.

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 per cent from a year earlier to 569 million euros, compared with a 36 per cent increase at rival BNP Paribas and 25 per cent jump across Wall Street. Equities trading revenue gained 5 per cent, versus a 15 per cent gain at US firms.

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.

Mr Oudea is 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.

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Still, SocGen, once considered a potential consolidator in Europe, is now perceived as a potential prey after its stock lost almost 60 per cent 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 US cents a share for the first nine months of the year, corresponding to 50 per cent of underlying group net income in that period.

BLOOMBERG