PARIS: Societe Generale SA (SocGen) reported on Monday a €1.26bil (US$1.48bil) second-quarter loss, as it booked a writedown on the value of its trading business that it seeks to revamp.
France’s third-biggest bank by market capitalization said it would reduce the risk profile of its trading unit in a shift costing €200mil to €250mil in lost revenue, though it pledged to maintain its equity structured products business.
SocGen has struggled to perform in businesses it wants to keep, such as equities trading, in a blow to efforts of chief executive Frederic Oudea to boost profitability.
It surprised investors with a first-quarter loss after revenue was wiped out at its equity trading division due to the coronavirus outbreak.
Second-quarter revenue fell 80% in equity trading, and rose 38% in fixed income trading. “The Group will continue to adapt its activities to the new post-COVID crisis environment, extending in particular the efforts to reduce costs, ” Oudea said in a statement.
SocGen’s investment bank has been traditionally weighted toward equities trading than fixed income, and for decades has been a top player in equity derivatives belying its relatively small size. It had an over 10% market share in equity structured products in 2015-2018, SocGen said citing Coalition data.
SocGen said as a result of its review, it would “maintain worldwide leadership in equity structured products” and “derisk” auto-callable products while developing a new generation of products.
Investors facing record-low yields have been increasingly chasing higher returns via complex derivatives, such as auto-callable notes, or autocalls. The activity is lucrative in good times but can leave banks vulnerable to volatility and increased hedging costs during times of crisis.
The bank said a review of the financial trajectory of its Global Markets and Investors Services (GIMS) unit, which includes fixed income and equity trading, led to the impairment of related goodwill of €684mil and deferred tax assets of €650mil. — Reuters
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