Via Financial Times

Société Générale’s investment bank showed signs of recovery in the final period of last year, relieving some pressure on chief executive Frédéric Oudéa as he seeks to boost its flagging valuation.

Net income at the investment bank surged 63 per cent to €291m in the fourth quarter. It was boosted by strong rebounds in fixed-income and equity trading, mirroring trends seen at peers Deutsche Bank and BNP Paribas. However, on an annual basis the unit’s profit fell by a fifth to €958m, the lender said on Thursday. 

Mr Oudéa, who has led SocGen for almost 12 years, has been under pressure to galvanise performance after a string of disappointing results, particularly in the investment bank. That division’s profits plunged by half in the fourth quarter of 2018, leading to 1,200 job cuts and a pledge to remove €500m in costs last April.

The French lender’s chief executive told the Financial Times in a recent interview he wants to prepare it for a potential wave of consolidation among European banks in the coming years. However, he acknowledged he first needed to improve the bank’s capital level and repair its battered valuation — both among the worst in the region.

“With this set of results, we believe SocGen is on its way back to normal with sound underlying trends and solid capital,” said Martina Matouskova, an analyst at Jefferies. There were “good dynamics delivering revenues” in French retail banking and “robust performance overall” at the investment bank.

At a group level, reported net income fell 5 per cent to €654m in the final period of 2019, missing analysts’ estimates, which the bank blamed on a number of unexpected one-off items and changes to accounting rules.

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Despite progress in the investment bank, SocGen’s return on tangible equity is lagging behind its target, highlighting the work still to be done by Mr Oudéa and chairman Lorenzo Bini Smaghi. On an annual basis, ROTE fell to 6.2 per cent from 8.8 per cent, far below its 9 per cent to 10 per cent profitability target. Meanwhile, overall net income fell 21 per cent to €3.2bn in 2019.

SocGen’s shares rose about 1.3 per cent on Thursday morning, extending their gain over the past 12 months to about 15 per cent. Still, the stock has fallen sharply during Mr Oudéa’s tenure and trades at only 40 per cent of the net value of the company’s assets, one of the steepest discounts for any lender in Europe.

“We are entering 2020 with confidence,” said Mr Oudéa on a call with journalists. “We intend to . . . pursue the expansion of our core franchises and improve our profitability, by increasing our efforts in terms of operational efficiency and disciplined cost management.”

Executives pledged net income would rise this year on the back of “slight growth in revenues in the current environment” — referencing the European Central Bank’s extension of its negative-rate policy that has weighed on banks.

SocGen also said it aimed to maintain its common equity tier 1 level greater than its 12 per cent goal even as new capital and accounting regulations are introduced. The bank’s key measure of high-quality capital rose to 12.7 per cent at the end of last year, more than analysts had expected.

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The bank also announced a new dividend policy, under which there will be a 50 per cent payout ratio of underlying net income, including a potential share buyback of as much a 10 per cent.

“Operating trends are improving, especially in the investment bank,” said Citi analyst Azzurra Guelfi. “Delivery of the cost plan is on track, capital solid and the new dividend policy highlights the progress made.”