(Bloomberg) -- Societe Generale SA fell the most in three months after plunging demand for the derivatives products the French bank pioneered turned its traditional strength into a weakness.
The 19 percent slump in revenue last quarter at the equities division, including prime services, missed the estimate of analysts -- who predicted little change -- and trailed a gain of about 6 percent recorded by arch-rival BNP Paribas SA. Debt-trading income also tumbled.
These trading revenue declines are “near worst in class,” Omar Fall, an analyst at Mediobanca SpA in London, said in a note to investors. “The elements of our negative thesis are all confirmed here: loss of share in Corporate and Investment Banking, litigation risk and under-performance in French retail.”
SocGen fell as much as 4.5 percent and was trading 3.1 percent lower by 10:30 a.m. in Paris trading. That puts the shares down about 1 percent this year, well behind the 9 percent increase in the Bloomberg Europe 500 Banks and Financial Services Index. It's the worst performer among France's four largest publicly traded banks in 2017.
SocGen was “more impacted on the equities side” than some European rivals because the French bank relies on structured products that are “more sensitive to the very low volatility environment,” Deputy Chief Executive Officer Severin Cabannes said in a Bloomberg Television interview Friday. He said he doesn't expect an immediate return of volatility in the markets.
The lender also set aside an additional 300 million euros ($350 million) for potential litigation expenses as it entered talks with U.S. authorities to resolve a bribery probe related to Libya and an investigation into alleged fake submissions of Libor rates. These matters could be resolved “in the coming weeks or months,” SocGen said.
With CEO Frederic Oudea weeks away from presenting new financial targets, the trading slump and prospect of costly legal settlements may make it harder to convince investors Societe Generale can boost profitability.
SocGen's total trading revenue, including fixed income, fell by about a quarter, more than the average decline of around 15 percent at the biggest Wall Street banks, but less than the slump booked by Deutsche Bank AG and Barclays Plc. The company did highlight two bright spots: continued “dynamic” demand for structured fixed-income products and a pickup in trading toward the end of the quarter.
At the French consumer-banking unit, low interest rates contributed to a 5 percent drop in revenue. Overall, SocGen's net income fell 15 percent to 932 million euros from the previous year, missing the 986 million-euro average estimate of analysts surveyed by Bloomberg.
Here's a quick summary of other key numbers from the results:
- Bank's legal provisions reached 2.2 billion euros at the end of September
- CET1 capital ratio at 11.7 percent, unchanged versus three months earlier
- Revenue from international retail banking rose about 5 percent on comparable exchange-rate basis; Russian unit rebounds
- SocGen's financing & advisory revenue fell 0.7 percent: good volumes helped offset “a particularly lackluster commodities market.”
To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net.
To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Frank Connelly, Michael J. Moore
©2017 Bloomberg L.P.
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