French bank’s growth and profitability targets hit by global market conditions in Q4 2018

Société Générale’s revenues in its global markets & investor services division were down 8.3% in 2018. The French bank said they were impacted by an unfavourable market environment, due to ‘political tensions in Europe and the trade war between the United States and China’.

Société Générale issued more than 167,000 structured products, with estimated global sales of US$12.6 billion globally in 2018.

The vast majority of these, approximately 159,000, were listed certificates targeted at retail investors in Austria and Germany. In France, the bank collected €3.8 billion from 519 products – predominately wrapped as life insurance contracts. The structures were available via 60 different distributors, including via Adequity, Astoria Finance, Bien Prévoir, Equitim, i-Kapital and Zenith Capital.

In the Belgium, the bank issued 16 products worth €170 million which were available via Crelan, Deutsche Bank, Nagelmackers, Puilaetco Dewaay and SG Private Banking, Meteor, Tempo and Walker Crips while the majority of the 49 products (€46 million) in Sweden were distributed via Strukturinvest (18) and Exceed (16). Société Générale was also active in Czech Republic, Hungary, Portugal, Spain and the Netherlands.

Outside of Europe, it was the bond provider behind 559 products (US$2 billion) in Taiwan which were targeted at private banking investors while in Japan the bank issued 50 products (US$421 million) which were distributed via local securities firms. Société Générale collaborated with Citibank for the launch of eight products (US$154.6 million) in China and in Australia the bank issued 28 securities (US$63 million) during the year.

Equities and prime services posted a net banking income of €2.5 billion (US$2.84 billion) in 2018, down 4.4% on 2017, impacted by a declining equity market. The management of structured product portfolios was affected by sharp market movements throughout the year.

In the fourth quarter, equity revenues of €550 million were down 16% compared to Q4 2017 with structured products performance and hedging costs affected by global market conditions.

At €1,975 million, the revenues of fixed income, currencies & commodities (FICC) shrunk 16.8% in 2018 compared to 2017. They were down 28.8% in Q4 2018 from the same quarter in 2017 and amounted to €366 million. Rate activities were hit by an unfavourable environment while credit was impacted by widening spreads in line with previous quarters. At the same time, according to the bank, commodities enjoyed a good quarter, with ‘buoyant commercial activity’ in the energy and carbon markets.

The 2018 group long term funding was realised at competitive conditions. Total funding of €39.2 billion was raised in 2018 which included €15.2 billion of vanilla debt and €24 billion of structured notes.

Funding conditions were competitive and the average maturity was 4.5 years. The parent company funding programme for 2019 is similar to 2018 – €17 billion of vanilla debt, balanced across the different debt formats and the annual structured notes issuance volume of approximately €19 billion is in line with amounts issued over the past years.

‘In an economic, financial and regulatory environment that looks set to be less favourable and even more complex over the next few years than anticipated a year ago […] our first priority is, and will remain, to increase value for shareholders while consolidating our capital trajectory,’ said Fréderic Oudéa (pictured), the chief executive officer, commenting on the group’s results.

The disastrous performance of the bank’s global markets division has resulted in the exit of its head Frank Drouet, and a downsizing exercise which includes slashing €8 billion of risk-weighted assets and an additional 500m of costs and a review of its ‘less profitable’ fixed-income and currencies business. However, Oudea confirmed its plan to retain its dominant position in equity derivatives including the ‘distribution of investment products such as structured products’.

Click the link to view fourth quarter and full year 2018 results and the presentation.