PARIS (BLOOMBERG) – Societe Generale swung to a surprise €1.26 billion (S$2.04 billion) loss for the second quarter because of charges at its trading unit, extending a losing streak that’s set to increase pressure on chief executive officer Frederic Oudea.
The French lender posted almost €1.33 billion in one-off costs following a review of the global markets and investor services business, including a €684 million writedown. That capped a tough period for the bank, which saw equities-trading revenue decline 80 per cent after structured products were hit for a second straight quarter.
Mr Oudea, already under pressure from the board after an unexpected first quarter loss, is reducing risks and seeking to increase profitability while attempting to maintain the bank’s leading position in equity structured products. Equities trading took a €200 million hit in the second quarter related to companies cancelling dividends because of the coronavirus, offsetting a 38 per cent rise in fixed income trading.
Mr Oudea, the longest-serving leader of a top European bank, is accelerating a transition towards simpler products at the investment bank that will see a decline in revenue. The bank said it also expects to cut costs by as much as €450 million by 2022 at the unit.
The French firm’s biggest rival, BNP Paribas, rebounded from a first-quarter profit warning and stock trading hit with a blowout performance in fixed income. Revenue from trading fixed-income securities, currencies and commodities jumped 154 per cent in the second quarter from a year earlier, offsetting a more than 53 per cent decline in equities trading. It said there was only a “residual impact” from the dividend cancellations.
SocGen set aside about €1.28 billion in the second quarter to cover the cost of loans going sour, higher than the €820 million in the first three months.
The lender is closing its trade commodity finance unit in Singapore after the collapse of oil trader Hin Leong Trading (Pte) Ltd, which owed SocGen US$240 million (S$330 million), Bloomberg reported last week.
The bank’s so-called cost of risk will probably fall at the low end of its range for the year while it also saw a further strengthening of its capital ratio, a key metric watched by bank investors. It expects the CET1 ratio to be at the top end of its 11.5 per cent-12 per cent guidance.
The results signal that SocGen only partially benefited from a broad-based market rally that helped US peers double revenue in fixed income trading. Overall, Wall Street banks’ trading and deal-making businesses recorded their best quarter in modern history, with US$45 billion in revenue. Still, they and European counterparts, including Deutsche Bank AG, have warned that conditions will probably be less advantageous in the second half of the year.
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