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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.

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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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