Societe Generale SA’s fixed-income trading unit outperformed most peers in a volatile first quarter, as clients reacting to interest-rate hikes spurred revenue in an otherwise tough trading period.
(Bloomberg) — Societe Generale SA’s fixed-income trading unit outperformed most peers in a volatile first quarter, as clients reacting to interest-rate hikes spurred revenue in an otherwise tough trading period.
Income from debt and currencies trading jumped 16% from a year earlier, compared with a 9% gain at rival BNP Paribas, according to a statement Friday. Revenue at the equities-trading unit fell 18% from the record first quarter of 2022. While that was better than many rivals in Europe, it was a bigger drop than Wall Street’s average 14% decline.
Lower provisions helped the bottom line, with the Paris-based lender seeing net income gain 5.7% to €868 million ($948 million). SocGen, which also revised its cost of risk guidance for 2023 downwards, posted an underlying cost-to income ratio, a key efficiency metric, below its own targeted range.
The bank’s shares fluctuated in early Paris trading, and were down 0.3% at €21.86 at 9:16 a.m.
Chief Executive Officer Frederic Oudea is set to step down later this month after a 15-year tenure that spanned the global financial crisis and Covid-19. His successor, Slawomir Krupa, is expected to lay out his broader strategic plans later this year, with an explicit mandate from Chairman Lorenzo Bini Smaghi to improve the bank’s valuation.
At 26%, SocGen’s price-to-book ratio is the lowest in European banking, according to data compiled by Bloomberg Intelligence.
Oudea also signaled his successor will face continued unstable markets in the near term. “It’s fair to say you will have still a volatile environment going forward,” Oudea said in a Bloomberg TV interview. “The risk factors are numerous.”
Traders at Credit Agricole SA’s smaller debt, currencies and commodities unit nevertheless beat the local pack with a 42% revenue surge in the first quarter.
SocGen restated earnings for last year after adapting new accounting standards, making a comparison with analysts’ estimates difficult.
What Bloomberg Intelligence Says:
Societe Generale’s revenue setback — down 4% vs. 1Q22, missing analyst estimates by 2% — and an impasse on strategic ambitions or direction will leave months of uncertainty overhanging the lender until incoming CEO Slawomir Krupa lays out new financial targets and strategic ambitions, set for 3Q. The French Retail Bank is the biggest concern — 11% top-line slump — while overall costs (6% beat) and cost of risk surprised positively.
— Philip Richards, BI banking analyst
Analysts at Keefe Bruyette & Woods noted a “standout” quarter for SocGen’s trading unit, but an underwhelming performance across the bank’s retail operations when excluding the impact of lower provisions.
“Shares are cheap but until NII shows signs of stabilising, we expect shares to remain that way,” analysts Thomas Hallet and Andrew Stimpson wrote Friday, referring to net interest income, or the spread between what the bank makes from lending and paying depositors.
The lender’s French retail operations saw revenue decline 11% to €1.93 billion, in a sign that France’s challenging environment for retail banking persists. French mortgage loan generation fell by more than a third in the first three months of the year, according to preliminary Bank of France data, as rising rates lead borrowers to pause their projects and lenders to turn down loan applications.
SocGen also said that higher rates on regulated savings schemes and the phasing out of the ECB’s favorable long-term loan program known as TLTROs had impacted revenue in France.
Oudea said that several of the bank’s key strategic objectives had moved forward during the quarter, including a step toward IT integration between the retail banking networks in France and a break-even reached by the online banking unit Boursorama.
SocGen’s financing and advisory unit posted a 4.7% gain in revenue, driven by a strong increase in revenue at its interest-rate sensitive cash management business.
The firm’s fully loaded CET1 ratio, a key indicator of its financial strength, stands at 13.4%.
–With assistance from Dani Burger, Manus Cranny, Macarena Muñoz and Steven Arons.
(Updates with shares, details on price-to-book ratio, Bloomberg Intelligence, analysts comments)
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