PARIS (Reuters) – Societe Generale will continue to overhaul its investment bank after its equity division posted its best performance in six years in the first quarter, the French bank said on Thursday.
Equity trading income jumped to 851 million euros from 9 million just a year ago, helping SocGen to post better-than-expected net profit of 814 million euros ($ 977 million) after loss of 326 million euros in the first quarter of 2020.
Shares of France’s third-largest bank jumped 6.6% to their highest level since March 2020 and rose 3% at 9:26 a.m. GMT, outperforming a 0.46% drop in the Stoxx Europe index 600 Banks.
“Equity-related activity has had its best quarter since 2015,” SocGen said in a statement.
Under pressure to boost its profitability, Frédéric Oudea, CEO of SocGen, accelerated the overhaul of its business lines underway since 2018 to strengthen its balance sheet.
It sold divisions in Central and Eastern European countries such as Poland, Serbia and Bulgaria and also abandoned or reduced certain corporate and investment banking (CIB) activities, such as commodities trading. raw.
Slawomir Krupa, head of global banking solutions and investor solutions at SocGen, said the rebound in equities trading would not change the IPC review due to be unveiled on May 10, with the lender keen to reduce the risk profile of its structured products.
Last year, SocGen was hit by losses related to complex derivatives and the bank announced that it would abandon certain lines of business.
Krupa told reporters that activity over the past three quarters supported the bank’s thoughts on reviewing investment banks, without giving further details.
SocGen shares are up 43% year-to-date after falling 45% in 2020, while the Stoxx Europe 600 Banks index has climbed 25% this year, reaching its highest level since the 26th. February 2020 Thursday.
“The strong recovery in equities and good performance in retail sales in France are reassuring and the consensus must revalue the estimates given the downturn in world markets and the fall in the cost of risk”, declared JPMorgan analysts.
Other European banks were also able to rely on exceptional trading volumes and lower credit risk provisions in early 2021 to offset low loan margins.
UniCredit and ING beat earnings expectations on Thursday, as did Italy’s largest bank Intesa Sanpaolo on Wednesday.
SocGen’s earnings per share jumped to 0.79 euros, above an average forecast of 0.23 euros, according to data from Refinitiv.
Fixed income and currency trading revenue rose 2.63%, outperforming some European competitors such as BNP Paribas and Barclays, but still lagging behind US investment banks.
However, European banks are still grappling with slim margins due to historically low interest rates and COVID-19 restrictions, meaning the resilience of their first quarter rebounds will likely be tested if trading volumes are decreasing.
In its retail business in France, SocGen saw a 1.8% drop in revenue in the first quarter as bottlenecks weighed on business, but said business was gradually improving .
The turnover should be between -1% and + 1% this year, the head of distribution networks Sébastien Proto told reporters.
SocGen also confirmed that loan loss provisions due to the pandemic will decline this year from 2020 levels.
The bank now sees its cost of risk, which reflects provisions for bad debts, to be between 30 and 35 basis points in 2021, compared to 64 basis points last year.
As part of new initiatives to improve returns, SocGen entered exclusive negotiations last month to sell most of its asset management subsidiary Lyxor to Amundi for 825 million euros.
The lender also said last year that it would merge its two retail banking networks in France, shutting down 600 of its nearly 2,100 branches by 2025.
(1 USD = 0.8328 euros)