Société Générale SA , France’s second-biggest listed bank, warned of more pain in 2012 after a grim quarter hit by another writedown on Greek debt and a loss at its investment bank, where traders’ bonuses are being halved.
SocGen offered some reassurance by meeting new capital requirements six months early, with a core tier 1 ratio of 9.0 per cent, and saying there had been a pick-up in capital markets activity.
“We need to be prudent because I think the environment is going to stay volatile in 2012. But the start of the year has been good in (capital) markets,” chief executive Frederic Oudea told Reuters on Thursday.
Mr. Oudea has been cutting jobs and selling assets to cope with the euro zone debt crisis and boost its capital reserves.
Larger rival BNP Paribas, when it beat forecasts on Wednesday, said the outlook for 2012 had been boosted by cheap cash from the European Central Bank, a move which has lifted bank shares this year.
SocGen’s fourth-quarter earnings fell 89 per cent to €100 million ($131-million U.S.) compared with a forecast for 190 million in a Reuters poll in which estimates ranged from a €521-million profit to a €42-million loss.
The bank’s corporate and investment bank, bearing the brunt of efforts to slash assets and debt, slumped to a quarterly loss of €482-million.
Volatile financial markets created by the euro zone sovereign debt crisis have taken a big bite out of European bank profits, particularly at their bond trading operations.
Credit Suisse and Deutsche Bank have said they ended 2011 with quarterly losses, while Barclays recorded its worst quarter for three years.
SocGen’s investment bank loss was worse than expected after a surprise writedown on the value of toxic assets left over from the last financial crisis - such as mortgage-backed securities - which SocGen has gradually been selling down to boost capital.
The also bank took a €162-million charge on its Greek sovereign debt, which it has now written down by 75 per cent, and a revenue hit of €419-million from the falling value of toxic U.S. mortgage-backed assets -- an unwelcome reminder of the 2008 financial crisis and one that surprised analysts.
“(The toxic-asset loss) will be taken negatively,” said Andrew Lim, analyst at Espirito Santo bank. “On the positive side, deleveraging is occurring quicker than expected”.
“It is less a story about the stock than about the sector,” said Marco Bruzzo, head of asset-management company Mirabaud Gestion AM. “Today, Spain has lifted its short-selling ban on financial stocks. So, this looks like an intra-day arbitrage between Spanish financials and those of other countries.”
SocGen sold €10-billion of assets during the fourth quarter and will not pay a dividend for 2011, part of its race to boost capital and meet the European Banking Authority’s June deadline for a 9 per cent tier 1 ratio.
“We will no doubt have more deleveraging costs in 2012,” Mr. Oudea said. SocGen is more exposed to investment banking and trading than BNP Paribas.
SocGen will pay a dividend on 2012 earnings, Mr. Oudea said, a payout that will be financed partly by the sale of more business units, Mr. Oudea said.
“I won’t indicate in advance which are the assets we will sell. There are a certain number of processes under way.”
Mr. Oudea would not comment on whether SocGen had tapped the first round of the ECB’s long-term facility in December. SocGen has not decided whether to take part in the second round later this month, he said.
Yohan Salleron, a fund manager at Mandarine Gestion, said: “The results are indeed pretty disappointing, in part due to a revaluation of their toxic-asset portfolio.”
SocGen’s quarterly revenue fell 12.4 per cent to €6.01-billion, compared with a forecast for €5.81-billion.