PARIS (Reuters) - Societe Generale joined on Thursday a growing list of European banks cutting or missing key financial targets as they struggle to grow on the back of negative interest rates and volatile trading volumes.
Frederic Oudea, SocGen’s chief executive since 2009, is trying to lift the bank’s profitability and solvency by cutting jobs, costs and businesses. He has downsized investment bank activities but lost 300 million euros revenue as a result.
SocGen expects overall profitability to improve in 2020, but there was little chance of hitting a key target of 9%-10% return on tangible equity (ROTE) it had previously set. Its 2019 ROTE was 6.2%.
BNP Paribas on Wednesday cut this year’s target for profitability, while UBS Group missed its 2019 profit and cost targets.
“In 2020, the Group expects an increase in Group net income compared to 2019, with slight growth in revenues in the current environment and a reduction in the Group’s operating expenses,” SocGen said in a statement.
In its latest revamp, SocGen is focusing on areas where it can compete globally, such as equity derivatives, which it said delivered “a robust performance” in the fourth quarter.
It plans to keep a lid on costs and said its bonus pool would be relatively flat.
Severin Cabannes, deputy CEO at SocGen, said the bank gained market share in equities trading at the expense of some rivals in 2019. The revenue from this business rose by 8.9% in the fourth quarter.
“In Q4 business in the United States and Europe went well. The question is about Asia. Asia has done less well and now with the Chinese virus, the question may arise what will be the impact,” Cabannes told a group of journalists on Monday.
Coronavirus has shut down cities and factories in China and disrupted global air travel, while financial analysts have cut their growth outlook for the world’s second-largest economy.
“BACK TO NORMAL?”
Overall fourth-quarter results showed a 4.8% rise in quarterly revenue to 6.21 billion euros ($6.8 billion).
“We believe SG is on its way back to normal with sound underlying trends and solid capital,” analysts at Jefferies said in a note, adding that revenue was above their expectations.
The bank’s common equity tier one capital ratio - a key measure of financial health - rose to 12.7% at end-December from 12.5% at end-September.
SocGen said it will maintain a 50% dividend payout ratio for next year when shareholders would be remunerated in cash or a possible “share buyback component of up to 10%”.
The share price was up 0.8% at 1125 GMT. SocGen’s market value has dropped by a fifth since the appointment of Oudea, in line with the European banking index
Over the same period BNP Paribas has risen by 7% and Credit Agricole by 23%.
($1 = 0.9094 euros)
Reporting by Maya Nikolaeva; Editing by Sudip Kar-Gupta and Elaine Hardcastle
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