SocGen trading resilient in 2017 on equities

The lender also posted higher than expected quarterly sales and net income


PARISSociete Generale SA (SocGen) CEO Frederic Oudea weathered the low volatility in late 2017 better than some competitors, returning the bank’s equities-trading business to traditional strength.

After declines that were worse than rivals such as BNP Paribas SA earlier in the year, the bank posted fourth-quarter (4Q) equities income of €501 million (RM2.4 billion) that beat analysts estimates, though was little changed from a year earlier. The lender also posted higher than expected quarterly sales and net income, even as restructuring and other

charges hit the bottom line. Trading results were under pressure in the second half as low rates and scarce volatility reduced customer appetite for complex products and trading, though recent whipsawing markets are boosting activity and 4Q equities earnings rebounded 39% from three months earlier. The bank extended its cross-asset business and said it benefitted from a pick-up in structured products amid rising commercial activity in Europe and North America.

“The prospects are positive for our capital markets and more generally our wholesale activities,” Oudea said in an interview with Bloomberg TV. SocGen’s trading business will benefit in 2018 from “volatility, more conviction maybe by investors, more flows”. SocGen jumped as much as 6.2%, and was 4.4% higher at €46.19 by 9:21am in Paris trading yesterday. The shares have risen about 7.3% in 2018, compared to a gain of about 5% for the benchmark Euro STOXX Banks Index.

Oudea, now 10 years in the top job, has reorganised senior management and announced new goals in November to boost revenue in trading and the French retail business, which both suffered declines in 2016 and 2017. SocGen is promising improved profitability and progressively higher dividends as it seeks €3.6 billion of additional revenues within three years while closing or selling some activities.

SocGen, which is targeting 2.5% annual average growth in trading revenue through 2020, posted revenue of €6.32 billion in the 4Q, above analysts estimates for earnings of €5.86 billion. The bank also posted a small net income for the quarter, compared to analysts’ estimates for a loss, after taking a charge related to the new US tax laws and job losses.

In the 4Q, BNP’s sales from equity-trading and prime services had a rebound from the previous year but its fixed-income revenue slumped 27%. SocGen did better in that business as it reported revenue from buying and selling bonds, currencies and commodities that was 6.5% lower. The equities business’ €501 million of revenue compared to analyst estimates for €408 million.

Asked if the bank issued or structured the types of products linked to a volatility index that recently collapsed, Oudea said the bank “didn’t have to suffer that kind of consequences”.

Still, SocGen’s core capital level declined to 11.4% at the end of December, lower than expected by some analysts, and the bank’s stockpile of legal provisions reached €2.3 billion. The company is facing probes from US authorities and in November disclosed it was in talks to potentially settle investigations into alleged interest-rate manipulation and bribery in Libya. Oudea repeated that SocGen has “the objective to put these litigations behind us in the next weeks or months”.

Another issue may arise from the tax treatment of Jerome Kerviel’s 2008 record trading loss. Following French media reports last month, Oudea confirmed that the bank received from the French Finance Ministry “a proposal to potentially call into question the tax deduction,” but it’s taking no provisions as it considers it has “a very strong case”.

These are some of the other highlights from SocGen’s quarterly earnings: Bank sees stabilisation of French retail revenue in 2018 Common Equity Tier 1 capital ratio was 11.4% end December, down from 11.7% end September. Lyxor had €13 billion of annual net inflows in 2017. Bad-loan provisions €469 million in 4Q, down 3.5% from year ago. SocGen booked €200 million of additional litigation costs. — Bloomberg