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Societe Generale has lowered its financial targets and will reduce the costs of its investment bank by 500 million euros, becoming the last French lender to take action in difficult market conditions.
SocGen said it would target a return on tangible capital of between 9 and 10% by 2020, down from the previous target of 11.5%. He also stated that he would not achieve his 3% revenue growth goal.
To achieve the additional cost savings by 2020, the bank will reduce its fixed income business and review its credit, interest rate and currency activities to consolidate its capital position and exit underperforming sectors. . Fixed-income, foreign currency and commodity trading revenues decreased 28.8% in the fourth quarter.
"We make structural decisions. We are not only looking for 2018, we are blocking future tranches of additional capital, "said Frédéric Oudéa, CEO of SocGen. The bank is still targeting a core capital ratio of 12% in 2020. This ratio was 11.2% at the end of December.
"Capital markets have been disappointing [last year] and. . . we also have better visibility in an environment that will be more difficult for capital markets, "said Oudéa. "What we have seen is clearly a shift in our vision of the political, financial and economic environment. Today, on all these lines, it is less favorable than 12 months ago. "
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SocGen estimates that "the revision of the interest rate badumptions used in its estimates will have an impact of approximately € 500 million on the group's turnover in 2020". To delay it, it will seek to reduce risk – weighted badets by 8 billion by 2020 and will also speed up its badet sale program.
The bank made these announcements as part of its annual results, which recorded a 6.3% drop in sales in the fourth quarter to 5.93 billion euros, which is in line with expectations according to the Reuters data. The investment bank was particularly hard hit, with revenue down 6.9% and profit more than 50% in the fourth quarter. Equity trading revenue fell by 15%. SocGen has announced that it will replace Frank Drouet at the head of the market activities.
SocGen slashed the day after its French rival BNP Paribas warned of "extreme market conditions" in the fourth quarter, cutting costs by 600 million euros and reducing financial targets .
"Of course, the capital markets are disappointing, but. . . I think the way we manage our risk shows that it was better managed. We did not have a big problem with one product and it shows that the framework was probably adequate, "said Oudéa. He mentioned the bank's international financing and retail financing activities and added that the bank would stay the course in Russia.
Mr. Oudéa has been at SocGen for a decade and faces growing investor frustration and badyst questions. He was commended for bringing the bank through the business of Jérôme Kerviel and the financial crisis. However, the bank's share price has fallen by 40% over the past 12 months as the European banking sector has suffered from low interest rates, growth concerns and political turmoil.
"What is clear to me is that the current stock price does not represent what this bank delivers and can deliver," said Mr Oudéa. "I do not think that today, many banks in Europe are paying back a capital cost. . . European banks generally have a problem: profitability.
"We are saying that we will have a return of 9-10% by 2020 but with more capital and the beginning of the normalization of the cost of risk. It means that we get the fruits of everything we do. . . It is not a question of waiting for the cycle in Europe, it is rather about the structural changes of the economic model ", added Mr. Oudéa.
In 2017, SocGen announced its intention to remove 300 of its 2,000 branches and up to 900 employees from its French retail banking network, following the acceleration of its efforts in the digital and retail sectors. cost reduction of 1.1 billion euros per year by 2020.
The new cuts announced Thursday could result in job losses, said people familiar with the case.
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