* Investment banks worldwide hit by sluggish Q4
* French banks struggle with dollar reliance, funds drought
* Tobin tax, Greek haircuts loom
* ECB funding providing little upside
* RBS jobs next on chopping block later this week
By Lionel Laurent and Christian Plumb
PARIS, Jan 10 Societe Generale's
freshly overhauled management team is promising more pain for
its investment bank unit this year, sounding a deeply
pessimistic note likely to be echoed by rivals in France and
elsewhere in Europe.
The news that France's second-biggest lender is eyeing a
"significant" fall in investment banking revenue for 2012 and
has decided to exit or deeply cut several businesses is the
latest dollop of pain for investment banks worldwide after
businesses such as debt and equity capital markets were hammered
For SocGen's domestic rivals BNP Paribas and
Credit Agricole, SocGen's plan to drastically scale
back in areas like property and shipping finance and physical
energy trading, could offer a roadmap for further retreats on
what used to be key business lines.
The French banks' erstwhile empire-building designs in
particular have been throttled in recent months by an
evaporation in dollar funding as U.S. investors spooked by the
euro zone crisis have dashed for the exits.
But the cutbacks at SocGen, which recently brought in a new
chief financial officer formerly at rival Credit Agricole and
replaced its corporate and investment banking chief, also
reflect a grisly environment for investment banks worldwide as
once reliable businesses such as stock issuance have dried up.
"Today, they're preparing for an environment in which
funding is harder and harder to come by, and it's as a direct
result of that that they're restructuring," said Francois
Chaulet, a fund manager at Montsegur Finance in Paris, which
owns shares in both SocGen and BNP Paribas.
"At the same time, you have markets and an economy which are
depressed, and thus there's not very much top-line growth
potential for the investment banks."
MILD BY COMPARISON
Even the European Central Bank's offer of three-year
ultra-cheap loans, which French banks have rushed to take
advantage of, seems to have done little to ease the gloom.
"SocGen and its peers are all pulling back to focus on their
home markets ... (But) you would have thought that with the
ECB's offer of three-year funding at 1 percent, the outlook for
SocGen's cost of funding would not have deteriorated that much,"
said Andrew Lim, analyst at London-based brokerage Execution
In large part, SocGen's moves, which echo belt-tightening at
investment banks such as Switzerland's UBS and Japan's
Nomura, reflect declines in once reliable businesses.
Debt capital markets activity sank 5 percent in 2011, as
bond issuance fell, while equity capital markets activity,
slammed by the sovereign debt crisis, plunged 30 percent,
according to a recent Mediobanca analyst report.
In cutbacks that will make recent lay-offs at SocGen and its
domestic rivals look modest, Royal Bank of Scotland is
likely to cut between 3,000 and 4,000 investment jobs as part of
an overhaul to be unveiled this week.
After dealmaking fell 31 percent in the fourth quarter,
according to data from Thomson Reuters, and other areas such as
fixed income, currency and commodities trading suffered through
their worst period since the 2008 financial crisis, SocGen and
other banks have little reason for optimism.
"Therefore it is tough not to be cautious into 2012, barring
major policy responses," analysts at Morgan Stanley said in a
research note predicting a 5 to 15 percent drop in investment
banking revenue for the year.
Adding insult to injury for the French banks is a host of
other factors, ranging from French President Nicolas Sarkozy's
determination to levy a tax on financial transactions to growing
speculation that Greece's private sector creditors will have to
accept substantially larger haircuts than had been suspected.
French brokerage Cheuvreux cited both those factors, along
with expectations for poor fourth-quarter earnings, "weak
capital markets, slower volumes and continued margin pressure"
when it downgraded both BNP Paribas and smaller rival Natixis on