SocGen Posts Fourth-Quarter Loss on Newedge, Legal ExpensesFabio Benedetti-Valentini
Societe Generale SA, France’s second-largest bank, posted a fourth-quarter loss after writing down its stake in derivatives broker Newedge Group and setting aside 300 million euros ($403 million) for legal expenses.
The shares fell after the Paris-based lender said today it had a net loss of 476 million euros, compared with a 100 million-euro profit a year earlier. That missed the average estimate for a loss of 203 million euros by 10 analysts surveyed by Bloomberg. The bank had goodwill writedowns of 392 million euros in the quarter, mostly on Newedge.
Societe Generale cut jobs and sold assets last year to cope with stricter international capital and liquidity rules after French banks had their access blocked to U.S. dollar funding and European debt markets. The writedowns and litigation costs in the quarter offset a rebound in earnings at the corporate- and investment-banking unit, where the firm trimmed about 1,600 jobs in 2012 after shuffling management at the business.
“Clearly the beginning of the year was good” for capital markets even if for the economic outlook “no one is expecting an upside” this year, Chief Executive Frederic Oudea, 49, said in an interview with Bloomberg Television. “We know that 2013 will be a year of transition for Europe.”
Societe Generale dropped 3.6 percent to 31.49 euros at 9:16 a.m. in Paris, cutting its gain this year to 11 percent and giving it a market value of 24.7 billion euros. BNP Paribas SA, France’s biggest bank, has added 7.3 percent in the period.
Societe Generale took a 300 million-euro fourth-quarter charge on “litigation issues,” it said, without giving further details. The lender also took a 686 million-euro charge related to its own debt in the quarter. Banks book accounting charges or gains tied to the theoretical cost of buying back their own debt as market prices fluctuate.
The firm is reorganizing its main businesses “to improve commercial and operational efficiency,” the company said today in a separate statement, without giving any cost-cutting targets. Societe Generale’s structure will have three main units made up of French retail banking and a new business blending international branch networks with specialized financial services. It will also combine corporate and investment banking with investment-management services including private banking.
Societe Generale last year sold its Greek branch network and it also agreed to dispose of its stakes in Los Angeles-based asset manager TCW Group Inc. and its Egyptian consumer-banking unit. The French bank has achieved “the lower end of its target range” for asset disposals, it said today.
The lender also reorganized some of its executive management. Philippe Heim, currently deputy chief financial officer, will become CFO starting March 1, replacing Bertrand Badre, who is joining the Washington-based World Bank. Jacques Ripoll, who oversaw private banking and global investment management and services, is leaving Societe Generale, while Didier Valet, head of the corporate and investment bank, will also be in charge of Ripoll’s businesses.
“It’s rather good,” said Alex Koagne, an analyst at Natixis SA in Paris with a neutral rating on the stock. “The reorganization continues and there might be more asset sales.”
The lender, which trails BNP Paribas in building up its capital buffer, confirmed today that it aims to reach a core Tier 1 ratio under Basel III of 9 percent to 9.5 percent by the end of 2013.
Societe Generale’s customer deposits last year rose by 16 billion euros “within stable sources of funds,” the bank said. The company said last month that complying with a 100 percent Basel III 30-day liquidity ratio is “within its reach.” BNP Paribas has said that deposits from large companies are “at the heart” of its global corporate banking business.
BNP Paribas, which is scheduled to report earnings tomorrow, will probably have a 1.01 billion-euro fourth-quarter profit, up from 765 million euros a year earlier, according to the average estimate of eight analysts surveyed by Bloomberg. Deutsche Bank AG, Europe’s biggest bank by assets, last month posted a 2.17 billion-euro quarterly loss as it eliminated more than 1,400 staff and set aside 1 billion euros for legal costs.
Societe Generale had a “liquid asset buffer” of 133 billion euros at the end of December, covering 101 percent of its short-term needs, the bank said in a web presentation. The company last year had a “significant rise in the surplus of stable resources over long-term assets,” it said.
Global central bank chiefs last month gave lenders four more years to fully comply with international liquidity rules. Banks in the European Union may have to agree to them before competitors in other parts of the world, according to a document obtained by Bloomberg.
The liquidity coverage ratio -- which would force banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze -- is part of an overhaul of global financial rules, known as Basel III, intended to prevent a repeat of the financial crisis that followed the 2008 collapse of Lehman Brothers Holdings Inc.
Societe Generale, which omitted a dividend for 2011 as it accumulated capital, will pay a dividend of 45 euro cents a share for 2012, corresponding to a 26 percent payout on profit excluding the effects of own-debt revaluations, it said. The firm’s full-year net income fell 68 percent to 774 million euros.
Societe Generale’s corporate and investment bank completed its 16 billion-euro loan-disposal program started in June 2011 and over the last 18 months it also sold 19 billion euros of assets left over from the U.S. subprime crisis, it said.
Securities firms have posted gains in revenue since European Central Bank President Mario Draghi’s July pledge to do “whatever it takes” to defend the euro sparked a rally in bond markets.
French banks, the biggest foreign holders of private and public debt in the euro-area’s problem economies, benefited from the ECB’s moves. The Frankfurt-based central bank flooded financial markets with more than 1 trillion euros of three-year funds through its Longer-Term Refinancing Operations in December 2011 and February 2012. Banks have already pledged to return 145.6 billion euros.
While the ECB doesn’t provide a breakdown of the institutions returning the loans, some banks have indicated that they’re handing money back. Spain’s Banco Santander SA said it returned 24 billion euros of ECB’s longer-term refinancing operations.
Societe Generale started repaying the ECB’s three-year loans in January, Oudea said today, without giving an amount. The loans were “a kind of an insurance premium” and “it’s good to reduce slightly the cost of the premium and to do that progressively,” he said.
Societe Generale’s corporate- and investment-banking unit had a 249 million-euro profit in the quarter compared with a loss of 482 million euros a year earlier, beating analysts estimates for earnings of 219 million euros. Global-markets revenue climbed 33 percent to 1.03 billion euros as sales from fixed-income, currencies & commodities jumped by 75 percent while the equities business declined by 5 percent.
Full-year revenue from global-market activities, which includes trading on equity and fixed-income securities, was 4.88 billion euros in 2012, up 18 percent from a year earlier, the bank said.
Societe Generale also had 92 million euros in net losses from reducing assets left over from the U.S. subprime crisis, according to a web presentation. The French bank has about 3.1 billion euros in non-investment grade subprime assets at the end of 2012, it said.
Net income from Societe Generale’s French consumer-banking network fell 16 percent to 254 million euros, missing analysts’ estimates for 294 million euros. The unit’s provisions for bad loans in the fourth quarter rose 27 percent to 300 million euros, it said.
At its international consumer-banking business, profit fell 69 percent to 23 million euros in the quarter. In Romania, “the marked deterioration in the economic situation” led to a “sharp increase” in bad-loan provisions last year.