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Aug 3, 2020

News | Business | Banking | France: Société Générale falls to surprise loss with equities unit under pressure

3minutes - Source FT

Société Générale slumped to a surprise loss in the second quarter after the French bank took a hefty charge as part of an overhaul of its struggling investment bank.
The lender reported a €1.26bn loss for the quarter as it pledged to cut risk and strip costs from its equities trading division, booking more than €1.3bn in one-off charges.
It was the second quarterly loss in a row for SocGen, with revenues falling 15.7 per cent compared with the same period last year to €5.3bn, roughly in line with analysts’ estimates. The market had expected the bank to record a small overall profit.
SocGen unveiled a revamp of its core equities trading business, which was crushed in the first quarter after companies cancelled dividends to conserve cash during the coronavirus pandemic, resulting in big losses on derivatives linked to potential shareholder payouts.
The division fared little better in the second quarter, with revenues down 79.5 per cent compared with the same period in 2019. Dividend cancellations cost the bank another €200m in the quarter.
In a statement on Monday, SocGen said it would “reduce the risk profile on equity and credit structured products in order to decrease the sensitivity . . . to market dislocations”.
The equities business, which has long been at the heart of SocGen’s identity and in which the bank says it will maintain “worldwide leadership”, will forfeit €200m to €250m in revenues as a result, but will get a compensating €450m drop in net costs by 2022-2023. SocGen said it currently has 10 per cent market share in equity structured products.
Chief executive Frédéric Oudéa, the longest serving head of a European bank, said SocGen would “continue to adapt its activities to the new post-Covid crisis environment, extending in particular the efforts to reduce costs”.
SocGen enjoyed a solid quarter in fixed income trading, with revenues up 38.1 per cent. However, it did not see the kind of results Wall Street or its French rival BNP Paribas enjoyed. Last week, BNP Paribas said its fixed-income revenues jumped more than 150 per cent in the quarter.
The bank set aside €1.28bn in the second quarter to cover the expected losses it would make on loan defaults, compared with €820m in the first quarter. Its core equity tier one ratio — a closely watched measure of balance sheet strength — came in at 12.5 per cent and the bank expects it to be at the high end of a 11.5 to 12 per cent range by the end of the year

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