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 results heaped further pressure on chief executive Frédéric Oudéa, the longest serving head of a large European bank, as the share price fell to 60 per cent lower than at the start of the year.
“There is a very good understanding of the challenges of the bank,” Mr Oudéa told the Financial Times on Monday. “I’m convinced that we can rebound from the current situation and we should see that in the coming quarter. The board has a perfect understanding of that.”
Along with banks across Europe and North America, SocGen has had to reserve billions of euros to meet expected losses on soured loans resulting from the coronavirus crisis. But unlike its rivals, the Paris-based lender missed out on strong trading returns in the spring when clients frantically repositioned their portfolios.
SocGen reported a €1.26bn loss for the second 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 consecutive quarterly loss for SocGen, with revenues falling 15.7 per cent year on year to €5.3bn, roughly in line with analysts’ estimates. The market had expected the bank to record a small overall profit.
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.
Domestic rival BNP Paribas last week beat analyst expectations after benefiting from a surge in fixed-income trading and lower than expected loan loss provisions.
SocGen unveiled a revamp of its core equities trading business, which was hurt 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 during the three months.
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.
The group said overall costs were due to come down to €16.5bn for 2020, significantly below the €17.4bn it reported last year.
Mr Oudéa said it was too early to say how much of the savings would be from job cuts. He added that some of the reductions were due to the way working had changed in response to the coronavirus crisis, with the majority of staff working from home.
SocGen enjoyed a solid quarter in fixed-income trading, with revenues up 38.1 per cent. However, it did not see the kind of trading bonanza 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.
Its core equity tier one ratio — a closely watched measure of balance sheet strength — reached 12.5 per cent. 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.