SocGen posts surprise loss as equities traders are wiped out in rout

SocGen lost about 200 million euros on products related to the cancellation of dividend payments.
SocGen lost about 200 million euros on products related to the cancellation of dividend payments.PHOTO: REUTERS

PARIS (BLOOMBERG) - Societe Generale posted a surprise first-quarter loss after its stock traders were wiped out in the market volatility caused by the coronavirus and the bank set aside 820 million euros (S$1.26 billion) to cover bad loans.

Revenue from equities trading and the business of servicing hedge funds slumped 99 per cent to 9 million euros in the first quarter, the French lender said on Thursday (April 30), contributing to a 40 per cent decline at the bank's trading business. SocGen posted a 326 million-euro loss.

The results add to a series of setbacks for chief executive officer Frederic Oudea, the longest-serving leader of a top European bank, who has focused SocGen on its traditional strength in equities and related derivatives after exiting or refocusing fixed-income activities. Wall Street banks on average posted a 28 per cent gain in equities trading in the quarter.

The bank - which has already been cutting costs and exiting less profitable trading businesses - said it's planning additional cost reductions of 600 million to 700 million euros this year by cutting down on travel and event expenses, reducing external providers and freezing hiring.

TRADING LOSS

SocGen said it lost about 200 million euros on products related to the cancellation of dividend payments in the trading business. That came after Bloomberg reported earlier this month that the bank lost between 150 million and 200 million euros on equity derivatives, citing people familiar with the matter. The global markets unit, overseen by Jean-Francois Gregoire, saw trading volumes three to four times higher than usual in March across equities and fixed income, currencies and commodities, the people said.

Fixed income trading helped cushion those losses, with a gain of 32 per cent that puts the bank on par with US firms. Gregoire last year replaced the veteran head of global markets, Frank Drouet, to turn around the fixed income business while sustaining the bank's strength in equity derivatives.

SocGen and crosstown rival BNP Paribas are among the biggest players in dividend futures and structured products, which are derivatives linked to shares and corporate payouts - both of which have tumbled since the emergence of the deadly coronavirus. Traders at BNP Paribas also lost an estimated $200 million on equity derivatives in the first quarter, Bloomberg has reported.

DIVIDEND FUTURES

Some of the positions that went awry at SocGen included dividend futures, the people said. These trades have slumped in value as firms around the world suspend their awards in response to the economic damage of the coronavirus and, in some industries, pressure from regulators. SocGen also said it was hurt by counterparty defaults and higher reserves.

 
 
 
 

The business of advising on deals and helping companies raise money posted a loss as the investment bank set aside 342 million euros for risky assets and to cover two fraud-related charges during the quarter.

SocGen sought to sell leveraged loans to unwind swaps tied to the debt, following other banks that have offloaded such credit investments to undo the risky wagers, Bloomberg has reported.