The Strategist

Societe Generale Upset Investors

02/11/2016 - 13:51

Today, the leading French bank Societe Generale has reported on its performance in the fourth quarter of 2015 and for the entire 2015. Total income of the bank grew in general. However, the difficult situation in Russia has deteriorated results of international retail operations. In addition, the bank warned that the current year’s performance may not achieve its goals in terms of profitability, which immediately caused a decline in the bank's quotations by 12%.

© BrokenSphere / Wikimedia Commons
© BrokenSphere / Wikimedia Commons
Societe Generale’s report said that the year net profit amounted to € 3.6 billion, which is 27.4% more than a year before. In the fourth quarter, profit was € 686 million, which is 37.6% more than in the fourth quarter of the previous year. Total revenue from banking operations for the full year amounted to € 25.6 billion, which is 8.8% higher than a year earlier. In the fourth quarter, the figure was € 6 billion, down from 1.2% in the fourth quarter of 2014.

The bank particularly stressed that the economic situation in Russia has adversely affected the overall performance of retail banking. Profit retail banking operations in France for the year increased by 2.9% compared to 2014 year, and in the fourth quarter - by 1% compared to the same period of the previous year. International retail operations’ gain in 2015, by contrast, declined by 1.3%. In the fourth quarter, the loss was 2.3% - largely due to the situation in Russia, where the volume of loans fell by 12%. Total revenue from the Russian retail banking operations (one of the key market) for the year amounted to € 603 million, which is 25.8% lower than a year earlier. Russian operations as a whole continued to bring the bank a loss in 2015 (€ 221 million), although the setback occurred to be 59.3% less than in 2014. The fourth-quarter loss of banking operations in Russia amounted to € 8 million (€ 10 million previous year); the full year losses amounted to € 165 million.

However, most investors got upset with the bank’s cautions that the institution is unlikely to achieve profitability targets set earlier at the 10%. This was explained by the "difficult market and economic conditions, as well as more stringent requirements of regulators". Experts point out that the situation for European banks has deteriorated significantly in recent years due to the increased volatility in the markets, historically low interest rates and the regulator’s control tightening, which entails additional costs associated with the provision of information. Societe Generale’s warning of the impossibility to reach its profitability goal has strengthened the already pessimistic mood of investors about the situation in the banking sector. The bank’s quotes at Paris auction collapsed by 12%, becoming one of the leaders of the fall at today’s trading session in France and Europe as a whole.