Societe Generale SA swung to a surprise $1.5 billion loss because of charges at its trading unit, extending a losing streak that’s set to increase pressure on Chief Executive Officer Frederic Oudea.
The French lender posted almost 1.33 billion euros in one-off costs following a review of the global markets and investor services business, including a 684 million-euro writedown. That capped a tough period for the bank, which saw equities-trading revenue decline 80% after structured products were hit for a second straight quarter.
Oudea, already under pressure from the board after an unexpected first quarter loss, is reducing risks and seeking to increase profitability while attempting to maintain the bank’s leading position in equity structured products. Equities trading took a 200 million-euro hit in the second quarter related to companies canceling dividends because of the coronavirus, offsetting a 38% rise in fixed income
Oudea, the longest-serving leader of a top European bank, is accelerating a transition toward simpler products at the investment bank that will see a decline in revenue. The bank said it also expects to cut as much as 450 million euros of costs at the unit by 2022.
The French firm’s biggest rival, BNP Paribas, rebounded from a first-quarter profit warning and stock trading hit with a blowout performance in fixed-income. Revenue from trading fixed-income securities, currencies and commodities jumped 154% in second quarter from a year earlier, offsetting a more than 53% decline in equities trading.
SocGen set aside about 1.28 billion euros in the second quarter to cover the cost of loans going sour, higher than the 820 million euros in the first three months.
Its so-called cost of risk will probably fall at the low end of its range for the year while its capital ratio, a key metric watched by bank investors, also strengthened. It expects the CET1 ratio to be at the top end of its 11.5%-12% guidance. The bank also said its on track to reach its cost target of 16.5 billion euros for 2020.
The results signal that SocGen only partially benefited from a broad-based market rally that helped US peers double revenue in fixed income trading. Overall, Wall Street banks’ trading and dealmaking businesses recorded their best quarter in modern history, with $45 billion in revenue. Still, they and European counterparts including Deutsche Bank AG have warned that conditions will probably be less advantageous in the second half of the year.