Societe Generale CIB faces further cuts

LONDON, May 4 (IFR) - Societe Generale has outlined plans to cut a further 220m in annual expenses from its investment banking business over the next year, despite producing a better first-quarter result than many of its peers.

The French bank had already announced a 323m programme of cuts last August and has since said it will exit from mortgage-backed securities sales and trading in the US and from being a primary dealer in the UK, among other measures. In April it also put 128 staff in France at risk of redundancy.

Now it plans to reduce other activities that are not profitable or do not generate synergies with other parts of the global banking & investor solutions business.

It will also look to offshore more roles to centres in Bucharest and Bangalore, continuing a practice that has seen number of offshore staff nearly double since the beginning of 2013. Over the same period the number of front office staff has fallen by 9%.

Making these cuts will cost an additional 160m in one-off charges, which will mainly be taken this year. However, that can all be funded by the 218m rebate received from the European Commission after its fine for colluding to fix Euribor levels was halved. That decision came through in April.

Didier Valet, head of GB&IS, said that the extra cuts were needed to balance rising compliance costs across the division.

“Underlying costs will be more or less flat up to 2018 and 2019. But there are additional compliance costs, including the costs of setting up our intermediate holding company in the US,” he said. “It is more difficult to predict variable compensation but these cuts will absorb the additional costs of doing business.”

During the first quarter, the division saw revenues fall 9.5% to 2.36bn compared with the same period a year ago.

Equities particularly suffered, in line with many rivals. Revenues slid 37% to 540m. Investors remain reluctant to act since last summer’s concerns about Chinese growth first materialised. Structured products bore the brunt of the downturn. In the same period last year Asian sales were strong in this area. Listed products fared better with market share gained in Europe, the bank said.

Secondary trading on the fixed income, commodities and currencies outperformed, seeing revenues rise 17% to 689m.

“Persistent volatility in rates and commodities led to strong demand for hedging solutions from clients,” said Philippe Heim, chief financial officer. Credit and foreign exchange saw lower volumes in a weaker market environment.

Another brighter spot was financing and advisory, where revenues rose 8.5% to 572m. The bank singled out structured financing and natural resources financing, which it called “resilient”. It also said it had increased its market share in debt capital markets to 6.6%, the third largest in terms of euro issuance so far this year, according to IFR data.

The impact of negative interest rates, and weaker markets generally, hit margins in the asset and wealth management business, which is included in GB&IS division. Revenues fell 21% to 236m.

The group booked 140m in risk provisions, including its oil and gas loan book, but has indicated that no further funds would need to be set aside with oil prices now steady at around US$40 per barrel. (Reporting by Christopher Spink)