So­ci­ete Gen­erale’s profit rises, CEO seeks to calm nerves

The Pak Banker - - FRONT PAGE -

So­ci­ete Gen­erale, France's se­cond-largest bank by mar­ket value, posted fourth-quar­ter profit that missed an­a­lysts' es­ti­mates as earn­ings at the in­vest­ment bank dropped and it set aside pro­vi­sions for po­ten­tial le­gal costs. Net in­come rose to €656 mil­lion (S$1 bil­lion) from €549 mil­lion a year ear­lier, the com­pany said yes­ter­day.

Earn­ings fell short of the €944 mil­lion av­er­age es­ti­mate of four an­a­lysts sur­veyed by Bloomberg, as a €400 mil­lion lit­i­ga­tion charge off­set a gain from the sale of a stake in as­set man­ager Amundi.

So­ci­ete Gen­erale, led by chief ex­ec­u­tive of­fi­cer Fred­eric Oudea, sig­nalled it may have dif­fi­culty reach­ing its prof­itabil­ity tar­get this year be­cause of "head­winds" that in­clude record-low in­ter­est rates and volatile fi­nan­cial mar­kets.

While the bank an­nounced a se­ries of cost-cut­ting mea­sures last year, it re­frained from deeper in­vest­ment bank­ing re­duc­tions like those un­der way at Deutsche Bank and Credit Suisse Group.

"You have to worry that 2016 will be a weak year for So­ci­ete Gen­erale and other banks," said Mr Michael Seufert, an an­a­lyst at Nord­deutsche Lan­des­bank who has a neu­tral rec­om­men­da­tion on the com­pany's shares. "There are so many fac­tors weigh­ing on them. Clients hold­ing off in­vest­ments is bad for banks as is the low in­ter­est rate en­vi­ron­ment in Europe." The shares dropped 7.8 per cent to €28.98 at 9.13am in Paris, ex­tend­ing losses this year to about 32 per cent. While So­ci­ete Gen­erale main­tained its tar­get for a 10 per cent re­turn on equity, it said the goal is "un­con­firmed" for this year.

The mea­sure of prof­itabil­ity was at 7.9 per cent last year. Banks across Europe have been cut­ting costs and shrink­ing their se­cu­ri­ties busi­nesses as volatile mar­kets un­der­mine rev­enue and reg­u­la­tors toughen scru­tiny of riskier ac­tiv­i­ties. At Deutsche Bank, co-CEO John Cryan was forced to re­as­sure in­vestors and em­ploy­ees this week that the bank is "rock solid" as con­cern about cap­i­tal and funds drove down the value of its stock and bonds.

At So­ci­ete Gen­erale, deputy CEO Sev­erin Ca­bannes said on Bloomberg Tele­vi­sion that there's "ab­so­lutely no risk" the bank will fail to pay coupons to in­vestors who are hold­ing the bank's ad­di­tional Tier 1 debt.

So­ci­ete Gen­erale an­nounced plans last year to adapt its busi­nesses to in­creas­ing regulation and to clients' mi­gra­tion to mo­bile bank­ing. The com­pany com­mit­ted to €850 mil­lion of ad­di­tional cost re­duc­tions by next year, with 420 job cuts in France, partly at in­vest­ment bank­ing sup­port teams.

It de­cided to re­duce the num­ber of its French branches by 20 per cent through 2020 and sold its mi­nor­ity stake in as­set man­ager Amundi to raise cash.

Net in­come last year rose 49 per cent to €4 bil­lion, the high­est since 2006, helped by as­set sales and ac­count­ing gains from the reval­u­a­tion of the bank's own debt.

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