Capital Calls: Euro zone bank laggards flatter to deceive

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A woman holds euro bank notes in Bern, Switzerland, January 16, 2015.

LONDON, May 6 (Reuters Breakingviews) - Concise insights on global finance.


WOODEN SPOON. Shareholders in Société Générale (SOGN.PA) and UniCredit (CRDI.MI) are unaccustomed to good news. The perennial European bank laggards bucked the habit on Thursday with blowout first-quarter results. Frédéric Oudéa’s French lender reported a juicy 10.1% return on tangible equity, after stripping out one-off charges. UniCredit’s new Chief Executive Andrea Orcel unveiled a less stellar but still respectable 6.9% ROTE, also on an underlying basis. Both banks’ shares rose 4%.

It’s unlikely to last. Both Oudéa and Orcel expect bad-debt charges to rise in the rest of the year. Revenues from investment banking will probably fall as market volatility subsides. Meanwhile analysts reckon SocGen’s costs will consume 73% of 2021 income, compared with BNP Paribas’ (BNPP.PA) 68%. UniCredit’s equivalent ratio of 58% is much worse than Intesa Sanpaolo’s (ISP.MI) 52%. Little wonder the French and Italian banks respectively trade at a 38% and 54% discount to their two closest rivals, using price to forward tangible book value. Oudéa and Orcel will remain stuck at the bottom of the class. (By Liam Proud)

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