Societe Generale trims targets as market downturn takes toll

PARIS (Reuters) - Societe Generale has cut its profitability target after the French bank was hit by a fourth-quarter market downturn, joining other European banks battling a tough environment.

The logo of Societe Generale bank is pictured on an office building in Nantes, France, July 21, 2017. REUTERS/Stephane Mahe

The country’s third largest listed bank expects its return on tangible equity to be between 9 and 10 percent in 2020, down from a previous target of 11.5 percent.

Societe Generale also said it would not meet its 3 percent revenue annual growth target after revenue fell 6.3 percent in the fourth quarter to 5.93 billion euros ($6.7 billion), in line with analyst forecasts collected by Infront Data.

Profits at SocGen’s corporate and investment banking business fell by more than half during the quarter and the bank now plans to cut 500 million euros in costs at this business.

“In a rough environment, most notably at the end of last year, the performance of our market activities was disappointing,” SocGen’s Chief Executive Frederic Oudea said.

SocGen’s rival BNP Paribas this week also cut its financial targets after reporting its first loss on market activities since the financial crisis in 2008. BNP Paribas also plans to cut costs.

SocGen had issued a profit warning three weeks ago, hitting its shares. The stock was down 3.7 percent in early afternoon trading on Thursday.


Big European banks have found it tough to boost profitability after years of low interest rates have limited returns in retail banking, while corporate and investment banking had a difficult fourth quarter due to volatile markets.

Deutsche Bank also posted a bigger-than-expected quarterly loss at its investment bank last week, while Swiss bank UBS also reported significant revenue declines from its equity business..

December’s stock market selloff hit European and French banks hard as they are strong on equity derivatives and not on the cash market, like U.S. banks, David Hendler, analyst at consultancy Viola Risk, said.

SocGen will also sell or close down some businesses and has already closed its proprietary trading desk in Hong Kong.

The bank also replaced Frank Drouet, the head of market activities with deputy chief risk officer Jean-Francois Gregoire.

SocGen’s CEO Oudea also said the macroeconomic outlook had become more challenging for the bank in the past quarter with geopolitical uncertainties, an economic slowdown in the eurozone and lower expected interest rates all having an impact.

The bank will step up its plan to dispose assets. SocGen will now target selling businesses handling a total of 6 percent to 7 percent of its total assets, up from 5 percent until now.

SocGen has sold banks in Belgium, Bulgaria, Serbia, Moldova and South Africa over the past few months. The bank still aims to sell divisions that lack critical size.

The bank has said that asset sales would partly finance acquisitions in areas where it is strong, but Oudea said on Thursday SocGen would mainly focus on its own profitability.

As for Germany, Oudea said: “We are rather in a logic of organic growth.”

($1 = 0.8799 euros)

Reporting by Inti Landauro and Matthieu Protard; Editing by Alexander Smith/Sudip Kar-Gupta/Jane Merriman