SocGen forecasts ‘encouraging’ economic rebound despite posting worst loss since 2008

Last modified August 4, 2020. Published August 3, 2020.

Generale said that despite posting its worst loss since 2008 in the second quarter, the bank observed an economic rally that could mean the worst of the current crisis has passed as Europe emerges from coronavirus-related lockdowns.

“While April and May were heavily impacted by the reduction in activity of numerous economies around the world, the rebound in activities from mid-May is very encouraging,” CEO Frédéric Oudéa said in an investor call Monday morning.

Societe Generale reported a surprise EUR 1.26 billion ($1.48 billion) loss in the second quarter, compared to a EUR 1.05 billion ($1.23 billion) profit during the same period last year. It represents the Paris-based bank’s worst quarterly performance since 2008. 

The results significantly underperformed the expectations of many analysts. Those surveyed by Refinitiv expected a slight $13.6 million loss in the second quarter, according to CNBC, while analysts surveyed by The Wall Street Journal anticipated a “small profit.” 

The loss was driven in part by a 80% year-over-year decline in equity trading revenue. 

Looking toward a recovery, Oudéa said that the Paris-based lender would cut back on risk-taking structured equities products and slash hundreds of millions of euros in costs. 

“What we have done in the last two months is design a new range of products, the balance between the different products, which should on one hand reduce the risk if we were to face a similar situation,” Oudéa said, referring to the pandemic-related economic downturn. 

Oudéa added that the reduction of risk would lessen revenue at France’s third-largest bank by EUR 200 million ($235 million) to 250 million ($294 million). He said the bank would “more than compensate” by reducing costs by EUR 450 million ($529 million) by 2022. 

In an interview with Bloomberg, Deputy CEO Severin Cabannes declined to say whether those cost-cutting measures would lead to any layoffs this year.

Societe Generale has already cut operating expenses by nearly 10% over the past year, from EUR 4.27 billion ($5.02 billion) during the second quarter of 2019 to EUR 3.86 billion ($4.54 billion) now. 

Societe Generale’s top-line revenue, which the bank calls “net banking income,” fell over 15% year over year from EUR 6.28 billion ($7.38 billion) to EUR 5.30 billion ($6.23 billion). By comparison, French banking competitor saw a 4% increase in revenue over the same time period. 

Like most other banks, Societe Generale significantly increased its provisions for soured loans. The bank stockpiled EUR 1.30 billion ($1.53 billion) for “cost of risk” in the second quarter, a fourfold increase from the EUR 314 million ($369 million) it reserved during the same period last year. 

“Overall, the bank is robust, capital tier ratios are there, the quality of the portfolio makes us comfortable to monitor the cost of risk and we are able to think forward,” said Oudéa. 

The second quarter’s results also followed a disappointing first quarter for Societe Generale, in which the bank posted a surprise EUR 326 million ($384 milion) loss and vowed to cut costs. 

Oudéa also touted steps taken by the EUR 1.5 trillion-in-assets ($1.8 trillion) bank to adjust to climate change goals. Last month, Societe Generale said it would no longer work with clients that generate more than 25% of their revenues from the thermal coal sector and do not have a “credible exit strategy” from coal.

“We want to pursue that and enshrine this contribution to this energy transition in all the strategies of our businesses,” Oudéa said Monday.

Correction: A previous version of this story incorrectly described the first-quarter loss posted by the bank. This has been corrected.