By Mathieu Rosemain and Matthieu Protard
PARIS – Societe Generale, France’s third biggest bank, favoured financial prudence over quick returns to shareholders as it prepared for the arrival of a new CEO in May tasked with reviving its valuation in an uncertain economic climate.
SocGen said on Wednesday it hiked provisions for bad loans fivefold in the fourth quarter, cutting its net income over the period by 35% from a year earlier.
It also increased its core capital metric at end of December, calling 2023 a “transition year”, with the aim of finalising key deals after a bruising 12 months marked by a costly exit from Russia.
SocGen’s strong revenue from bond and currency trading, corporate financing and car leasing activities helped it beat market expectations in the fourth quarter, with a net income of 1.16 billion euros ($1.24 billion).
This beat the 834 million-euro analyst consensus provided by Visible Alpha. Group sales over the period were also up by 4% to 6.9 billion euros, also above expectations.
“There could be a bit of disappointment on the quantum capital return at this stage, but the results are better than expected and we think the guidance conservative,” Barclays said in a note.
Shares were edging down in early Paris trading, as the bank also announced a lower-than-expected return to shareholders, with 1.8 billion euros set to be distributed in 2023, including a 440 million-euro share buyback plan.
“There was really the feeling that we had an option that allowed us to both compensate the shareholder well and strengthen the capital,” said outgoing Chief Executive Frederic Oudea in a call with reporters.
“The board felt that this was the right balance point in this very specific year,” he added, citing the abrupt sale of Russian unit Rosbank last bank, that led to a 3 billion-euro write-off.
GRAPHIC: SocGen ( https://fingfx.thomsonreuters.com/gfx/mkt/zgvobkzjopd/SocGen%20chart.PNG)
SocGen followed in the footsteps of larger rival BNP Paribas in hiking provisions for bad loans, as most major U.S. banks have done amid recession fears and persisting loan growth.
Incoming CEO and SocGen’s current investment bank chief Slawomir Krupa will be tasked with reviving the stock valuation after years of restructurings and lacklustre performance.
Some of the group’s biggest deals and operational changes were initiated in 2022 and need to be followed through.
Krupa will notably oversee the merger of networks between SocGen’s two domestic retail brands in France, where it is struggling to benefit as much as some other continental peers from rising interest rates.
Krupa was also instrumental in ironing out a plan to form a joint venture with AllianceBernstein on global cash equities and equity research in a bid to keep up with BNP and leading Wall Street banks Goldman Sachs and JP Morgan.
The French bank reaffirmed its 2025 financial targets, which include a cost to income ratio below 62% and an expected return on tangible equity of 10%.
($1 = 0.9324 euros)