SocGen Outlook Unchanged Despite Market Woes
Societe Generale, France's second-biggest listed bank, said on Monday that its financial targets for 2007-2008 were unchanged despite experiencing difficult market conditions in August.
A presentation due to be given later on Monday by Chief Financial Officer Frederic Oudea at a Lehman Brothers conference in New York was made available on SocGen's website.
Slide 15 of the presentation was entitled "difficult market conditions in August." SocGen said it had reduced trading positions to contain risk, and had limited activity on credit markets but brisk business in equity derivatives.
It kept its 2007-2008 targets for organic growth on risk-weighted assets (RWA) of between 10 and 15% a year, a post-tax return on equity of 20% and a dividend payout of 45% in the medium term.
Like many banks around the world, SocGen's shares have fallen sharply in the last month on concerns over its exposure to problems in the U.S. debt and mortgage markets.
BNP Paribas, France's largest listed bank, last month triggered a fall in stock markets worldwide after temporarily freezing three funds amid the U.S. mortgage market problems. The BNP Paribas funds have since been reopened.
SocGen shares rallied after details of the presentation were released and were up 1.2% at 115.28 euros in mid-morning but erased their gains at midday.
The stock closed down 3.9% on Friday amid rumors of a profit warning at the bank.
In his presentation, Oudea reiterated that SocGen had a "limited exposure to U.S. mortgage and leveraged buyout (LBO) financing."
He said that in a scenario of $150 billion cumulative losses on subprime mortgage loans for the whole industry, SocGen would have an estimated loss of less than 100 million euros at its corporate and investment banking unit.
If the industry had subprime mortgage losses of $200 billion, SocGen's estimated loss at its investment banking arm would be below 200 million euros.
SocGen added that "in case of extreme stress test leading to full consolidation of conduits," there would be an impact of minus 40 basis points on its Tier 1 capital, which SocGen said was easily manageable.
SocGen said there would be a limited impact on revenues from the problems in the U.S. credit and mortgage market. It said that in 2006, its investment banking revenues from securitization and collateral debt obligation (CDO) business in the United States stood at 80 million euros.
Its investment banking division's revenues from leveraged buyout (LBO) financing were 160 million euros in 2006.
The bank added that it expected good growth from its international banking operations and that business at its investment banking arm was expected to remain "dynamic."
Based on latest prices, SocGen shares have fallen by around 11% since the start of 2007, in line with a similar fall in the DJ Stoxx European bank sector.