Societe Generale SA beat most analyst estimates in a challenging environment for securities trading, handing a boost to new Chief Executive Officer Slawomir Krupa ahead of his strategy presentation next month.
(Bloomberg) — Societe Generale SA beat most analyst estimates in a challenging environment for securities trading, handing a boost to new Chief Executive Officer Slawomir Krupa ahead of his strategy presentation next month.
Revenue at the markets unit that houses the trading operations fell 13% from a year earlier, less than expected and roughly in line with the biggest Wall Street firms. Net income of €900 million for the group beat estimates even as revenue fell short on lower income from French retail banking.
Krupa, the former top investment banker who took over the reins of the French lender in May, has indicated one of his priorities will be an efficient allocation of capital as he prepares to unveil his strategic plan. Chairman Lorenzo Bini Smaghi made clear he wants the new CEO to lift a stock that’s been the worst performer among the large French banks since the financial crisis.
SocGen rose 1.2% at 9:05 a.m. in Paris trading, bringing gains this year to 3.4%.
The results are “good enough ahead of the investor day” next month, Jefferies analyst Flora Bocahut wrote in a note that also highlighted lower-than-expected provisions for souring loans.
Some analysts say Krupa has a number of levers to pull that will help get the share price going again, such as the tie-up in cash equities and research with AllianceBernstein, the merger of the French retail networks and the acquisition of LeasePlan by SocGen’s car-leasing arm, ALD SA.
The AllianceBernstein venture, agreed last year and expected to close before the end of this year, combines parts of SocGen’s equities business with the US firm’s in an effort to better compete with BNP Paribas SA in stock trading.
Revenue from buying and selling equity securities fell 5.8% from a year earlier, beating analysts’ estimates and the 9% drop at the biggest Wall Street firms. Cross-town rival BNP Paribas fared better, with a 3% decline. BNP has been building up the business with hedge funds in recent years.
SocGen’s revenue from trading fixed-income products and currencies slumped 18%, in line with BNP, which had explained that performance with its European focus, meaning it couldn’t benefit from the recent pick up in the US-based credit cycle. The biggest Wall Street firms posted a 13% decline.
Another drag on earnings was the French retail unit, where revenue slumped 14%, one of the few businesses to fall short of estimates. The international retail operations made up for some of the decline at home.
French retail banks haven’t reaped the full benefits of rising interest rates yet because increases in rates on regulated savings have raised their cost of funding while mortgage lending rules cap how much they can charge on new loans.
What Bloomberg Intelligence Says:
Societe Generale’s 9% 2Q revenue decline (2% consensus miss) — driven by a 14% slump in the French retail bank — looks disappointing to us but signs of recovery in its investment bank, cost control (3% beat) and low cost of risk (12 bps) should underpin estimates, which could move higher. A new CEO in Slawomir Krupa and a capital makers day set for Sept. 18 could prove triggers for raised financial targets and a revitalized investment bank, for a lender trading at 0.3x tangible book.
— Philip Richards, BI banking analyst
Krupa in the statement said he plans to announce his new strategy at an investor day on Sept. 18. He already made a slew of appointments setting up the executive committee that will assist him in leading the bank and shook up leadership of the investment bank in May.
The lender also started to pare back its footprint on the African continent, announcing the disposal of four units and a strategic review on a fifth.
(Updates with share reaction in fourth paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.