SocGen mulls shutting RM19b proprietary-trading unit


PARIS • Societe Generale SA (SocGen) is considering closing its proprietary- trading (prop-trading) unit, people familiar with the matter said, a week after French rival BNP Paribas SA decided to shut its operation.

SocGen executives are reviewing the future of the Descartes Trading division, which makes risky bets with its shareholders’ funds, said the people, who requested anonymity as the details are private. The bank may decide to close the unit as the business has struggled to make profits, the people said.

The Paris-based lender shuttered the unit’s Hong Kong desk towards the end of 2018 and has pulled back from some trading strategies, the people said. A spokeswoman for Soc- Gen in Paris declined to comment.

The bank posted an update yesterday that showed group trading revenues probably slumped 20% in the fourth quarter, when a spike in market volatility caught many traders by surprise.

France’s third-largest bank said “challenging” conditions led to a decline of about 10% in annual revenue from its markets units, sending its shares down as much as 5.4%. Its troubles add to a grim quarter for French banks, traditionally renowned for their prowess in complex derivatives and now struggling to navigate increasing risk as the trade war and slowing economies whipsaw markets.

Crosstown rival BNP Paribas, the biggest French bank, has decided to close its prop-trading unit, Opera Trading Capital, Bloomberg reported last week. The division struggled to make a profit last year amid market volatility, people familiar with the matter said. Both Paris-based banks had to set up walled-off units housing prop trading to comply with post-crisis French rules.

Limited profits and big consumption of capital make it difficult for the banks to keep their prop-trading desks and many have closed in the past decade, said Samuel Lopez Briceno, a senior analyst at Vanguard Asset Services. “US banks have already done that a lot, driven by Volcker regulation. European investment banks tend to lag them.” Descartes, named for the 17th-century French philosopher, had €4.1 billion (RM19.33 billion) of assets at the end of 2017, according to filings. The unit had €377 million of capital, equal to about 4.5% of SocGen’s funds for global-markets and investor services activities, the filings show.

The bank has reviewed the performance of Descartes several times since its creation, the people said.