Société Générale has made a €300m litigation provision as a “precautionary” measure against a number of potential “commercial and regulatory” risks, as it reported a 68 per cent fall in 2012 net profit, driven by a fourth-quarter loss.
Frédéric Oudéa, chairman and chief executive, said the provision was not linked to a specific risk. France’s second-largest bank by market capitalisation has not given any indication whether it was preparing itself for any adverse result from regulators’ industry wide inquiry into the manipulation of Libor, Euribor and other interest rates. “There is no specific litigation,” Mr Oudéa said on Wednesday. “We live in a world in which there is a lot of litigation.”
He would not comment on the bank’s internal inquiry into whether its traders might have been involved in the manipulation of interest rates, other than to say that such reviews were “long” and the bank was in contact with regulators.
The rate-setting scandal has caught a number of banks in its regulatory net including Royal Bank of Scotland, which was fined £390m last week, and UBS, which made a $1.5bn settlement in December.
SocGen has been named alongside other banks in private lawsuits and was subpoenaed by US and French regulators over their Euribor enquiries.
Shares in SocGen fell by 4 per cent after publishing results that fell short of expectations. Net profit was €774m in 2012, down 68 per cent on the previous year after swinging into a €476m fourth-quarter loss from a net profit of €100m in the same quarter in 2011.
The loss was provoked by a string of one-off items, including a sharp rise in the cost of risk on domestic loans to medium-sized companies. “Good performances in the core investment bank, Russia, specialised financial services and global investment management were offset by misses in French and other international retail due to higher cost of risk,” said Jon Peace, analyst at Nomura.
In total, SocGen booked €2.6bn of provisions and writedowns in 2012. Of this amount, €822m was due to the theoretical cost of buying back its own debt; €860m was losses on disposals - including the sale of Geniki, the Greek bank and TCW, the US asset manager and a €390m goodwill writedown on its Newedge broker. There was also a €754m cost to cutting back the investment bank and selling toxic loan portfolios at a loss.
Jean-François Sammarcelli, head of French retail, said the 25 per cent jump in the cost of risk was because of “the suffering of medium-sized companies”. He expected the trend to continue this year.
Mr Oudéa said more disposals were likely but were not necessary to meet the bank’s target of a core tier one capital ratio under Basel III rules.
“2012 was a year of transformation of the balance sheet, which we’ve achieved,” he said.
SocGen also announced a business shake-up by collapsing its five main business lines into three, which analysts at Credit Suisse said would “generate additional cost synergies.”
Philippe Heim, deputy finance director will replace Bertrand Badre, finance director who is leaving to become managing director for finance at the World Bank next month.
Mr Oudéa said: “It’s good to have a Frenchman at the head of the World Bank, in this world which is fragmenting and where rivalries are being exacerbated.”