Revenue from equities trading, a traditional stronghold of the firm, slumped 99%, more than offsetting strength in the smaller fixed-income unit, the French lender said Thursday. SocGen set aside 820 million euros ($890 million) to cover bad loans and warned provisions — including for defaults and two fraud cases — could hit 5 billion euros this year in a worst case scenario.
Photographer: Chris J. Ratcliffe/Bloomberg
The net loss — 326 million euros for the quarter — adds to a series of setbacks for Chief Executive Officer Frederic Oudea, the longest-serving leader of a top European bank, who’s been refocusing SocGen’s trading on its traditional strength in equities and related derivatives. Wall Street banks on average posted a 28% gain in equities trading in the quarter.
“We went through extraordinary dislocations of the market in the second half of March,” Oudea said in an interview on Bloomberg TV.
SocGen fell 7% as of 1:10 p.m. in Paris trading, with French peers BNP Paribas SA and Natixis SA also declining. The stock has lost more than half of its value this year, one of the worst performers among European lenders.
Oudea said that in the bank’s “base case” scenario, bad loan provisions would amount to about 3.5 billion euros this year. If the economic contraction is more severe than anticipated, the number could rise to 5 billion euros, he indicated in the interview.
Trading Loss
“The difficult performance in equities was worse than we had highlighted,” Omar Fall and Lorenzo Gren, analysts at Barclays Plc, said in a note. The outlook for provisions “will likely be challenged as being low.”
Banks in the euro region have tried to avoid making big upfront provisions for loan losses, making use of regulators’ guidance to spread them over time. Deutsche Bank AG said yesterday it was setting aside 506 million euros in the first quarter, a number some analysts also questioned as possibly too low. At SocGen, about 36% of first-quarter provisions was related to the pandemic.
Read more: Biggest Banks Set Aside $66 Billion as Virus Hits Loans
The financial institution introduced ahead its outcomes announcement to Thursday. They had initially been scheduled for subsequent week.
SocGen — which has already been chopping prices and exiting much less worthwhile buying and selling companies — is planning further price reductions of 600 million to 700 million euros this 12 months by chopping down on journey and occasion bills, scaling again exterior suppliers and freezing hiring.
SocGen’s Equities Wipeout
Revenue collapsed at French financial institution’s key equities unit whereas rivals thrived
Source: firm shows
SocGen mentioned it misplaced about 200 million euros in the equities buying and selling enterprise from merchandise that have been hit when firms began to cancel dividends, confirming a Bloomberg story earlier this month. Some of the positions that went awry included dividend futures, which slumped in worth as corporations all over the world droop payouts, individuals aware of the matter have mentioned.
“We confirm the loss of 200 million euros, which is related to this brutal reduction — sometimes going to zero — of dividends,” Oudea mentioned in the interview. The buying and selling enterprise was additionally hit by greater hedging prices, he mentioned.
SocGen Starting Search for Successor to CEO Frederic Oudea
Societe Generale and crosstown rival BNP Paribas SA are among the many largest gamers in dividend futures and structured merchandise, that are derivatives linked to shares and company payouts. Traders at BNP Paribas additionally misplaced an estimated $200 million on fairness derivatives in the primary quarter, Bloomberg has reported.
SocGen was additionally a first-rate dealer to Malachite Capital Management, a New York-based hedge fund that needed to wind down throughout the first quarter after its bets on market volatility went awry, Bloomberg reported. That agency had about $600 million underneath administration.
What Bloomberg Intelligence Says:
Societe Generale’s 1Q revenue warning and loss successfully undo all of 2019’s good work, and with misses in equities buying and selling, French retail and prices, will hit each estimates and sentiment closely. Oil and Covid-19-related provisions have been anticipated, however the further 600-700 million-euro 2020 financial savings received’t be capable to offset disappointment on the outcomes.
— Philip Richards, BI banking analyst
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Fixed revenue buying and selling helped cushion the equities decline, with a achieve of 32% that places the financial institution on par with U.S. corporations. SocGen final 12 months changed its veteran head of worldwide markets, Frank Drouet, with former threat chief Jean-Francois Gregoire to show across the mounted revenue enterprise whereas sustaining the financial institution’s energy in fairness derivatives.
In addition to buying and selling losses, SocGen mentioned it was damage by counterparty defaults and better reserves. While it didn’t establish these events, the financial institution is amongst lenders uncovered to storied Singapore oil dealer Hin Leong Trading (Pte) Ltd., which has utilized for defense from collectors, doubtlessly turning into the very best profile casualty of an historic oil worth rout. The firm owes greater than 20 banks nearly $4 billion, together with about $240 million to SocGen, in response to a draft copy of a presentation for financial institution collectors seen by Bloomberg News.
The enterprise of advising on offers and serving to firms elevate cash posted a loss as the funding financial institution put aside 342 million euros for dangerous property and to cowl two fraud-related prices throughout the quarter. SocGen didn’t establish the circumstances however mentioned it might must provision extra as these conditions develop over the course of the 12 months.
— With help by Manus Cranny, and Nejra Cehic