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SocGen third-quarter profit slumps 34% as investment banking weakens

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Societe Generale has reported a net income of 854 million euros ($945 million) for the third quarter of 2019, falling short of analyst expectations.

Analysts polled by Reuters expected a net income of 863.20 million euros for the third quarter, according to Refinitiv.

The French lender posted a net income of 1.05 billion euros in the second quarter of 2019. Furthermore, it had reported a net income of 1.3 billion euros a year ago.

Here are some of the highlights for the third quarter of 2019:

  • Revenues stood at 5.98 billion euros vs 6.53 billion a year ago.
  • Operating expenses dropped 4.1% from a year ago to 4.17 billion euros.
  • CET Tier 1 ratio reached 12.5% from 11.2% a year ago.

Societe Generale announced earlier this year plans to cut 1,600 jobs, mainly at its corporate and investment banking arm.

“We are posting, our performance is very much in line with our objectives and priorities. Our priority number one is around capital. This is the core focus of our shareholders,” Frederic Oudea, chief executive officer told CNBC.

Societe Generale announced in 2017 that it would be looking to grow its capital position, towards a CET Tier 1 ratio target of 12% by 2020. Wednesday’s results marked the second consecutive quarter where CET Tier 1 ratio was at 12%.

Speaking to CNBC, Odea said that the bank is not going to revise its CET tier 1 ratio target going into 2020. Nonetheless, he said: “At the beginning of the year, there was some worry that we would not be able to meet the 12% target. We are above, it gives a cushion. People should feel pretty relaxed now.”

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Investment banking still weak

Societe Generale saw a drop of 26.7% in net income at its global banking and investor solutions business during the third quarter of 2019. This was due to the sale of certain units and a lower demand for large deals.

In this context, fixed income was overall stable from a year ago, but the equities business fell 20% from a year ago. Odea told CNBC that the French lender has not yet ripped all the benefits from closing certain business, which is only expected to improve the balance sheet at the end of 2019 and through 2020.

Looking at the other business divisions: French retail and international retail banking saw modest drops in net income in the third quarter. The former reported a net income of 311 million euros, down 2.8% from a year ago. International retail registered 513 million euros, a fall of 3.6% from a year ago.

Deal with Commerzbank

In the third quarter of 2018, Societe Generale purchased the equity markets and commodities business of Commerzbank. Societe Generale’s CEO told CNBC that the integration of the business should be concluded by the end of the year.

As part of its cost reduction plan, Societe Generale announced 1600 job cuts earlier this year, through a voluntary program. Speaking to CNBC, Odea said there could be further changes to its labor force in the French retail business. “We have just announced that we are starting a discussion on the back office for the period of 2020-2023 with our trade unions.”

Shares of Societe Generale are down about 20% from a year ago and almost 5% lower since the start of the year.

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