May 24, 2024

DealBook: After 4th-Quarter Loss, Société Générale Plans Overhaul

The headquarters of Société Générale in Paris.Jacky Naegelen/ReutersThe headquarters of Société Générale in Paris.

5:05 a.m. | Updated

PARIS — Société Générale posted a larger-than-expected fourth-quarter loss on Wednesday and said it would move to cut costs and simplify operations.

The bank reported a net loss of 476 million euros, or $640 million, compared with a profit of 100 million euros in the period a year earlier. Analysts surveyed by Reuters had expected a net loss of about 237 million euros.

Profit was hurt by a charge of 686 million euros as the bank revalued its debt, an accounting obligation because the market for those securities has improved. The company also took 380 million euro write-down of good will in its investment banking business, mostly on its Newedge Group joint venture with Crédit Agricole.

Société Générale also set aside 300 million euros as a provision against unexplained “litigation costs.” Like many of its global peers, the bank is under investigation from the authorities in a number of countries on suspicion that it conspired to manipulate the London interbank offered rate, or Libor. But bank officials declined to say whether that provision was specifically related to the investigation.

The bank said fourth-quarter net income would have been about 537 million euros excluding the one-time items. The bank’s shares fell 3.6 percent Wednesday in Paris trading.

Under Frédéric Oudéa, its chairman and chief executive, Société Générale has been working to emerge from the financial crisis as a leaner institution. It said that from mid-2011 to the end of 2012, it disposed of 16 billion euros of loan portfolio assets from the corporate and investment banking unit and an additional 19 billion euros of other assets.

The bank’s revamping, and an improvement in sentiment in the euro zone economy, has helped to restore its market standing. After a difficult 2011 that was marred by questions about Société Générale’s exposure to Greece, the bank’s shares have rallied, gaining 49 percent in the last year.

“We have achieved all our objectives” for 2012, Mr. Oudéa said in a conference call on Wednesday with analysts. He noted that the bank had sold TCW, an American asset-management unit; Geniki Bank in Greece; and National Société Générale Bank, an Egyptian lender.

In a research note to investors, Andrew Lim, a banking analyst at Espírito Santo in London, said that while “management has dealt convincingly with concerns about weak capital adequacy and liquidity in 2012, Société Générale is still struggling to convince investors that it can achieve improved returns.”

Société Générale said its Tier 1 capital ratio, a measure of the bank’s ability to withstand financial shocks, stood at 10.7 percent at the end of December, up 1.65 percentage points from a year earlier. The French firm said it expected to attain a Core Tier 1 capital target under the accounting rules known as the Basel III standard of 9 percent to 9.5 percent by the end of 2013.

The measures announced on Wednesday aim to focus the bank on three core businesses: French retail banking, international retail banking and financial services and corporate and investment banking and private banking.

The Société Générale group employs about 160,000 around the world, and it was not immediately clear whether the announcement of a reorganization, which officials said was likely to be accompanied by some branch closings, meant the bank would follow the lead of other large global institutions with a round of layoffs.

Mr. Oudéa did not provide much detail on his plans, saying in the conference call that he was committed to working with unions and employees to ensure that the reorganization went smoothly.

The French bank published its latest results a little more than five years after Jérôme Kerviel, a trader in the bank’s equity derivatives business, built unauthorized positions that led to a 4.9 billion euro loss for Société Générale.

Mr. Kerviel’s conviction on charges of breach of trust and forgery was upheld in October by the Paris Court of Appeals. He also was ordered to serve a three-year prison term, pending appeal, and to repay the bank for the full amount of the loss.

On Tuesday, Mr. Kerviel told the French radio station RTL that he was challenging the repayment order in a labor court, saying he had been ordered to pay without a third-party expert being allowed to study the damages. He added that he was suing Société Générale for an amount equivalent to the 4.9 billion euro trading loss.

Article source:

Speak Your Mind