The chairman of Société Générale has conceded the French bank was too slow to cut jobs at its struggling securities trading unit, as it tries to regain investor confidence following a collapse in its share price.
Shares in SocGen have fallen almost 40 per cent over the past year, underperforming almost all European lenders even including its ailing German rival Deutsche Bank.
Asked how he would respond to investors who think the French lender should have started shrinking its investment bank sooner, Lorenzo Bini Smaghi told the Financial Times: “It’s true: maybe it was not quick enough.”
SocGen shares suffered a sharp sell-off following a profit warning in January. Mr Bini Smaghi said the torrid market conditions at the end of 2018 prompted the lender to implement “drastic” steps to shrink its investment bank, including pulling out of some businesses entirely and shrinking others, such as its bond trading unit.
Despite not moving quickly enough to pare back the investment bank in the past, Mr Bini Smaghi said the lender was “making [a] correction” and was “now at full speed”.
He added: “The plan was already going in that direction. But we wanted to accelerate it. Unfortunately it coincided with the market shock at the end of 2018, which led to a profit warning. So the market was confused; maybe we did not communicate well enough.
“Clearly our [initial] three-year plan, which was made public at the end of 2017, was based on assumptions that were too optimistic. So we saw this, and we addressed it.”
SocGen is one of several European banks in the throes of restructuring its trading operations as they contend with record-low interest rates, poor trading conditions and stiff competition from US-based rivals.
Deutsche Bank has drawn up plans to cut up to 20,000 jobs, which could be announced as early as this month, while BNP Paribas, the French lender, has pledged to accelerate its cost-cutting programme.
Mr Bini Smaghi said most of the 1,600 bankers made redundant would leave the company by the end of the third quarter and hinted the lender was prepared to make further cuts if market conditions continue to deteriorate.
“I think if we’re able to show we can deliver, this is a method we can apply if the environment changes for the worse,” he said.
The SocGen chairman said that the cuts at the investment bank would free up funds to invest in higher-returning parts of its business such as its international operations in eastern Europe and Africa, its asset-backed financing unit, and insurance.
The Italian economist, who was on the executive board of the European Central Bank between 2005 and 2011, forecast that US investment banks would also face tough decisions on headcount if the Federal Reserve cuts rates this month as markets expect.
“The environment is getting relatively worse for the US than us [in Europe]. Interest rates are going to go down. They are getting into our environment, in which we have been living for quite some years now,” he said.
He said there were “no talks at present” about a merger between SocGen and UniCredit, which have long been rumoured to be exploring a tie-up. He added that major banking consolidation in Europe was unlikely for at least two years.
And he insisted that SocGen chief executive Frédéric Oudéa, who has led the bank since 2008, was the right person to run the bank after his contract was extended by four years with the backing of more than 96 per cent of investors.
He said: “To do the kind of job that is needed, you have to know the banking system, and you have to know the bank . . . I think frankly it would be crazy to change now.”
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