Société Générale, France’s second-largest lender by market value, warned that the trading environment would continue to be volatile this year as it reported an 89 per cent fall in fourth-quarter profits after its investment bank plunged into loss for the first time in two years.
Frédéric Oudéa, chairman and chief executive, said SocGen had been through “a year of transformation” as it deleveraged to achieve higher capital standards and was no longer dependent on US money market funds for dollar financing.
SocGen already said it would not pay a dividend – along with Crédit Agricole, the third-largest bank by market value – in order to bolster its balance sheet after the European Banking Authority said in December that it needed an extra €2.1bn of capital to achieve a core tier one ratio – a key measure of financial strength – of 9 per cent by June this year.
Mr Oudéa said the bank had achieved that target six months early, following in the footsteps of larger rival BNP Paribas, and was on track to meet new, higher Basel III capital demands by the end of 2013.
For the whole of 2011, net profit was 42 per cent lower at €2.4bn, on revenues down 3 per cent at €25.6bn. Return on equity was 7.5 per cent, down from 12.6 per cent in 2010.
Net profit in the three months to December of €100m was down 89 per cent on the same quarter last year and below expectations. The results were crimped by portfolio disposals and further provisioning of 75 per cent on Greek bond holdings, up from 60 per cent in the third quarter – in line with BNP. These, and other exceptionals, amounted in total to €459m in the quarter.
The corporate and investment bank made a quarterly net loss of €482m against a net profit of €311m in the final quarter of 2010, after €662m of exceptional provisions and writedowns, including a hit of €310m on the sale of toxic assets.
The division – previously SocGen’s profit driver – has undergone internal upheaval following the resignation of Michel Peretié, its head in December.
Mr Oudéa said traders’ bonuses would fall 50 per cent – in line with that reported by BNP. The investment bank had “ a very good start” to the year but he warned: “We need to be prudent because I think the environment is going to stay volatile in 2012.”
Net profit in the quarter also fell in international retail banking, mainly due to the exposure to Greece where SocGen owns a bank, and in financial services and insurance. French retail banking was the biggest contributor with flat net profit of €302m.
Analysts at HSBC said: “Weakness appears to have come pretty much across the board with every division disappointing versus our own forecast. On the positive side, the capital position is better – the group has clearly sacrificed its profit and loss [account] in large part to ensure it meets the EBA stress test.”
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