PARIS (Reuters) - Societe Generale (SOGN.PA), France’s No. 2 listed bank, is to cut 900 million euros ($1.18 billion) in costs over the next three years after a weak domestic economy and one-off charges halved quarterly earnings.
The new savings will help the bank reach a new return-on-equity (ROE) target of 10 percent by end-2015, said Chief Executive Frederic Oudea. Excluding one-off items, SocGen’s ROE was at 7.4 percent for the first quarter.
SocGen has already sold a slew of businesses over the past year, including subsidiaries in Greece and Egypt, to shore up its balance sheet in the face of global curbs on banks’ risk-taking and to offset recession in the euro zone.
Now the French bank is looking to cut operational costs and better compete with European rivals like UBS UBSN.VX and Deutsche Bank (DBKGn.DE) as they slash jobs and exit businesses.
The cuts will cost 600 million euros to implement, SocGen said. The bank did not give any details on job cuts but union sources told Reuters last month that it was mulling between 600 and 700 back-office staff reductions in France.
Like domestic arch-rival BNP Paribs (BNPP.PA), SocGen is battling a stagnant French economy: a jump in retail loan losses in its home market, coupled with one-off charges including a 100 million-euro litigation provision, saw first-quarter earnings drop a worse-than-forecast 50 percent to 364 million euros.
France’s No. 3 bank Credit Agricole also reported earnings on Tuesday, although it actually posted a 51 percent gain thanks to a favorable comparison with a year-ago period weighed down by charges related to Greece.
SocGen’s corporate and investment bank - more focused on equities than BNP or Deutsche Bank - was a bright spot, with profits up 40.7 percent in the quarter, helped by a 4.8 percent drop in costs and a rise in financing revenues. BNP’s pre-tax CIB profits fell 30 percent in the period.
SocGen’s profits were also hit by the bank’s efforts to boost liquidity and capital. SocGen’s core capital ratio at end-March under Basel III rules was 8.7 percent - behind JPMorgan Chase at 8.9 percent and BNP at 10 percent - and the bank said it was on track to be close to 9.5 percent at end-2013.
Reporting by Lionel Laurent; Editing by Christian Plumb