Socgen misses forecasts in restructuring hit

Lender sees 35% fall in profits but says investment bank overhaul ahead of

Société Générale said the overhaul of its struggling investment bank was ahead of schedule and reported a better than expected capital level in the third quarter, helping offset a 35 per cent drop in profit.

Quarterly net income at France’s third- largest bank fell to € 854m compared with the same period a year ago, missing the average €942m estimate from analysts, as revenue faltered at its mergers and acquisitions advisory and equity-trading unit and it booked a €115m charge for withdrawing from the Balkans.

However, an improvement in

Socgen’s core equity tier one capital ratio — a closely watched measure of balance-sheet strength — helped support the stock, which rose more than 4 per cent after the announcement on Wednesday. However, the shares have fallen 15 per cent in the past 12 months.

“The deleveraging in the investment bank is fully completed, which helped Socgen improve its capital faster than anticipated,” said Lorraine Quoirez, an analyst at UBS. As a result, “the CET1 ratio progressed to 12.5 per cent, significantly above consensus expectations”.

Chief executive Frédéric Oudéa, who has led the Paris-based lender for 11 years, announced 1,600 job cuts in April after several consecutive quarters of poor performance at its investment bank, part of a push to trim €500m from annual costs. The bank plans to close its commodities business and proprietary trading unit and is reorganising its fixed-income division to make it more profitable.

“You should see 2019 as a transition year” for the investment bank, Mr Oudéa said. Risk-weighted assets in the global markets trading business have fallen by €8bn so far this year, ahead of the bank’s 2020 target.

Almost all large European banks have struggled to generate acceptable levels of profitability in recent years as they are squeezed by new regulations, negative interest rates and a declining revenue pool in investment banking as the industry shrinks and digitises.