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Societe Generale posts heavy Q1 loss

Published May 20, 2020 - 2 mins reading time
Bank watch
For the first time since 2012, Societe Generale posted a net loss of 326 million euros, led by its CIB. Its profit stood at 686 million euros for the same period last year.

A loss of 537 million euros for CIB activities

Although the La Défense-based bank was due to unveil its accounts on May 6, it has brought the publication forward to April 30 to "cut short market rumors in an already very uncertain environment", as its CEO, Frédéric Oudéa, explained in a telephone press conference.

Affected by the market dislocation in March and thecancellation of dividend payments, corporate and investment banking (CIB) posted a heavy loss of 537 million euros, compared with a profit of 140 million euros a year earlier. The dividend derivatives business was particularly hard hit, with a loss of 200 million euros.

In the first quarter of 2020, the increase in CIB provisions led to a drop in revenues of 175 million euros.

Cases of fraud known to the market

Societe Generale's cost of risk reached 821 million euros (65 basis points) in Q1, compared with 264 million euros (21 basis points) in the same period last year. This increase is explained by higher provisions to deal with the Covid-19 crisis, but also by the bank's involvement in two fraud cases known to the market. In particular, the bank referred to a "significant charge" linked to a Singapore-based client that could be Hin Leong Trading, a hydrocarbon giant mainly involved in oil brokerage and storage. The latter is suspected of having concealed hundreds of millions of dollars in losses over several years.

A sharp rise in the cost of risk in 2020

The Group now anticipates a cost of risk of around 70 basis points for 2020, assuming that the pandemic results in a fall in gross domestic product (GDP) of 5.8% in France, 6.8% in the euro zone, and 2.3% worldwide in 2020. In a press release, Societe Generale indicates that the cost of risk could rise to 100 basis points in a scenario involving a fall in GDP of 11.1%, 12.8% and 7.8%, respectively in France, the euro zone and worldwide.

Despite its results, the French bank is reassuring about its capital base, with a "hard" equity ratio of 12.6% in March, well above regulatory requirements. It has also announced a cost-cutting effort of 600 to 700 million euros by 2020.