Société Générale warned of a “more difficult year” ahead in Russia as the group reported full-year profits hit by a writedown amid the weight of western sanctions and falling oil prices.
The French bank’s performance improved overall, reporting that full-year net income jumped by nearly a third to €2.7bn, driven by lower loan loss provisions, strength in investment banking and some businesses in eastern Europe.
The group, which was hit by a €525m writedown on the value of its Russia unit over the year, said it was facing an increase in the cost of risk in the region next year, however, as the economy “might face a recession”.
The French bank is the second-most exposed foreign bank to Russia after Austria’s Raiffeisen. SocGen’s Rosbank subsidiary, which has 620 branches and 5m clients, accounts for about 5 per cent of its total revenues.
Russia’s economy has been hit by western sanctions imposed after Moscow annexed Crimea from Ukraine last March, as well as the more than 50 per cent collapse in the oil price, both of which have hit the rouble.
Frédéric Oudéa, the bank’s chief executive, said that the likely increase in the cost of risk was going to be “manageable”, however, and that good progress had already been made to make the unit locally funded and cut costs.
Considering the “challenging and unstable environment,” he said, the bank had “posted a good business performance.”
The overall profits at the bank were boosted by the global markets business which reported a profit of €1.1bn, up from €700m a year earlier, which bolstered results even as its French retail banking business struggled.
The bank, which is under investigation by US authorities for alleged sanction breaches, also announced on Thursday that it would increase its total provision for litigation by €200m to €1.1bn in the quarter.
This followed last year’s record $8.9bn fine on BNP Paribas, also for US sanction violations, although the SocGen investigation is thought to be much more limited in scope.
The bank proposed a 2014 dividend of €1.2 per share, up from €1 the previous year, leaving its payout ratio unchanged at 40 per cent. However, it said it aimed to raise the ratio to 50 per cent this year.
It confirmed its target of a return on equity — a gauge of profitability — of 10 per cent by 2016 compared with 7.3 per cent last year, excluding exceptional gains and potential penalties.
In the fourth quarter, the group reported a net income of €511m, up from €191m a year earlier, where results were hurt by a European Commission fine for alleged rigging of the euro interbank offered rate. Revenues in the fourth quarter rose 7.5 per cent to €6.1bn.
SocGen earlier this year split the roles of chairman and chief executive, appointing the Italian economist Lorenzo Bini Smaghi to chair the French bank’s board of directors while Mr Oudéa continues as chief executive.
Société Générale’s total provision for litigation
Mr Bini Smaghi, a non-executive director of Morgan Stanley International with a doctorate from the University of Chicago, was an executive board member of the European Central Bank from June 2005 to December 2011.
His appointment highlighted the growing need for European banks to hire executives who can navigate the corridors of power in Brussels and Frankfurt after the ECB takes over regulations of big banks.
Get alerts on Societe Generale when a new story is published