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Bloomberg
Societe Generale SA posted a surprise first-quarter loss after income from its stock-trading unit was wiped out in the market volatility caused by the coronavirus and the bank set aside 820 million euros ($890 million) to cover bad loans.
Revenue from equities trading and the business of servicing hedge funds slumped 99% to just 9 million euros in the first quarter, the French lender said, contributing to a 40% decline at the trading business. SocGen posted a 326 million-euro loss, after a profit of 686 million euros a year earlier.
The slump adds to a series of setbacks for Chief Executive Officer Frederic Oudea, the longest-serving leader of a top European bank, who has focused SocGen on its traditional strength in equities and related derivatives after exiting or refocusing fixed-income activities. Wall Street banks on average posted a 28% gain in equities trading in the quarter.
“We went through extraordinary dislocations of the market in the second half of March,†Oudea said in an interview on Bloomberg TV.
The bank — which has already been cutting costs and exiting less profitable trading businesses — is planning additional cost reductions of 600 million to 700 million euros this year by cutting down on travel and event expenses, reducing external providers and freezing hiring.
The bank brought forward its results announcement to Thursday and had originally been set to publish its first quarter numbers next week.
SocGen said it lost about 200 million euros in the equities trading business from products that were hit when companies started to cancel their dividends, confirming a Bloomberg story earlier this month.
“We confirm the loss of 200 million euros, which is related to this brutal reduction — sometimes going to zero — of dividends,†Oudea said in the interview. The trading business was also hit by higher hedging costs, he said.
Fixed income trading helped cushion those losses, with a gain of 32% that puts the bank on par with US firms.
Jean-Francois Gregoire last year replaced the veteran head of global markets, Frank Drouet, to turn around the fixed income business while sustaining the bank’s strength in equity derivatives.
Societe Generale and crosstown rival BNP Paribas SA are among the biggest players in dividend futures and structured products, which are derivatives linked to shares and corporate payouts — both of which have tumbled since the emergence of the deadly coronavirus. Traders at BNP Paribas also lost an estimated $200 million on equity derivatives in the first quarter, Bloomberg has reported.
Some of the positions that went awry at Societe Generale included dividend futures, the people said. These trades have slumped in value as firms around the world suspend their awards in response to the economic damage of the coronavirus and, in some industries, pressure from regulators. SocGen also said it was hurt by counterparty defaults and higher reserves.
The business of advising on deals and helping companies raise money posted a loss as the investment bank set aside 342 million euros for risky assets and to cover two fraud-related charges during the quarter.
Societe Generale SA sought to sell leveraged loans to unwind swaps tied to the debt, following other banks that have offloaded such credit investments to undo the risky wagers, Bloomberg has reported.as.