Earnings

SocGen posts surprise loss as coronavirus crisis impacts its equity trading unit

Share
Key Points
  • The French bank decided to make provisions of 653 million euros to deal with potential risks from the ongoing crisis.
  • The French lender said that its CET1 ratio, which sheds light on its capital strength, is expected to be between 11.5% and 12% at the end of 2020.
  • Its equity trading business saw revenues fall 80% from a year ago.
VIDEO4:2404:24
SocGen CEO: We are ready to rebound with the regional recovery

Societe Generale reported a net loss of 1.26 billion euros ($1.48 billion) for the second quarter of the year, missing market expectations, as the bank set aside more capital due to the pandemic and reduced the value of its trading business.

Frédéric Oudéa, the bank's CEO, told CNBC's "Squawk Box Europe" Monday that the second quarter had effectively been its worst amid the Covid-19 crisis.

"We see the impact of the crisis on our businesses, with the lockdowns of the economies. What I would like to highlight is that actually we saw a rebound in June or mid-May, starting in mid-May depending of geographies for all our activities," Oudéa said, while also adding "now we are ready to rebound with the economies."

The French bank made provisions of 653 million euros to deal with potential risks from the ongoing health crisis. What it calls its "cost of risk" is now four times higher than where it was at the same time last year.

Net income surprised traders with the sizeable loss. Analysts were expecting a loss of 13.6 million for the quarter, according to Refinitiv, and shares sank around 4% in early deals Monday. The bank had seen a loss of 326 million euros in the first quarter and its stock is down about 58% since the start of the year. 

Here are some other highlights for the quarter:

  • Revenues stood at 5.3 billion euros, vs. 6.3. billion a year ago.
  • Expenses dropped to 3.9 billion euros, from 4.3 billion euros a year ago.
  • CET 1 ratio ( a measure of bank solvency) rose 12.5% from 12% a year ago.

The French bank said it will cut costs in its Global Banking and Investor Solutions businesses by around 450 million euros by 2021-2023. The investment arm of Societe Generale, which has traditionally been strong in its equity business, struggled in the second quarter. 

Revenues at its equity trading unit experienced a drop of almost 80% from a year ago, although fixed income rose by 38%. In this context, SocGen also said it will reduce the risk profile of its equity and credit products, in a move likely to impact revenues by between 200 million and 250 million euros. 

The French lender said that its CET1 ratio, which sheds light on its capital strength, is expected to be between 11.5% and 12% at the end of 2020.