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SocGen: Worst Is Over With Gradual Recovery Continuing

SocGen: Worst Is Over With Gradual Recovery Continuing

Thursday, 24 September 2020 05:12 PM

Societe Generale said the worst of the fallout from the coronavirus crisis is over for the bank after reaching its peak in the first quarter.

“We will have a much better-balanced breakdown” between fixed-income and equities revenue in the third quarter, Chief Executive Officer Frederic Oudea said in a webcast Thursday.

Recent trends are confirming the gradual recovery under way since mid-May, when most European nations lifted pandemic-related lockdown restrictions, the company said in a presentation. Revenue has improved, particularly for the bank’s equities divisions, which didn’t experience the same dislocations and market impact as in the first six months of the year, Oudea said.

SocGen’s equity-derivatives business, long considered the lender’s powerhouse operation, posted record losses in the first quarter after its highly complex products blew up when turmoil hit the market. Some of the bank’s trades relied on dividend payments, many of which were halted by companies around the world in response to the pandemic.

The bank is working to transform its equity structured-products offerings, designing them to no longer be exposed to dividend risk, Oudea said. It also plans to offer more single-asset products, instead of ones with multiple underlying assets that create high correlation.

“Clients can accept slightly lower yields, in a world of 0% rates, with us taking less risk,” Oudea said during the webcast.

SocGen said its cost of risk for the entire year will be at the lower end of the previously announced range of 70 to 100 basis points. Its CET1 ratio will be at the higher end of the 11.5% to 12% range.

The bank also reaffirmed its objective to cut underlying costs to 16.5 billion euros ($19.3 billion) in 2020 from 17.4 billion euros last year. The effort will continue beyond 2020, although the CEO didn’t set a medium-term objective.

Credit du Nord

The lender’s potential plan to create a new bank by merging its retail network with the one at its subsidiary Credit du Nord is expected to contribute to the expense-reduction effort. SocGen previously announced its intention to decrease its markets-business cost base by 450 million euros by 2023.

While domestic banking consolidation has started in neighboring countries, Oudea said it would much more complex in France because the market is concentrated and banks have large balance sheets.

Cross-border mergers, although more cumbersome, would be a good idea, the CEO said, affirming his previous comments on the possibility of such deals.

“If the conditions are there, we are one of the very few banks happy to look at whether there’s an opportunity,” Oudea said. “For the time being, our priority is, as I’ve said, a single one: Improve the share price, show that there is much more value than the current perception of the market.”

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Societe Generale said the worst of the fallout from the coronavirus crisis is over for the bank after reaching its peak in the first quarter.
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Thursday, 24 September 2020 05:12 PM
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