LONDON (Reuters Breakingviews) - Frédéric Oudéa remains at the mercy of his misfiring traders. The Société Générale boss on Thursday warned the French lender’s investment banking revenue had fallen by a fifth in the fourth quarter. Keeping the dividend flat and letting investors take it in shares, rather than cash, points to further capital headwinds.
A 240 million euro loss on disposals in Serbia and France was predictable. The sharp decline in SocGen’s quarterly trading income – worse than Wall Street peers – was harder to foresee. Berenberg analysts reckon revenue was 400 million euros lower than consensus forecasts. The bank also warned of a “significant” increase in risk weighted assets. That suggests further pressure on its already crimped profitability. The investment banking division’s return on normative equity – SocGen’s preferred metric – was an underwhelming 8.9 percent in the first nine months of 2018.
Capital is another potential concern. SocGen is keeping its dividend flat year-on-year at 2.20 euros per share, below the 2.27 euros predicted by analysts, according to Refinitiv data. Tellingly, the bank is also giving shareholders the option of taking the payout in shares. Assuming half of them do so, SocGen expects a year-end common equity Tier 1 capital ratio of between 11.4 and 11.6 percent. That’s still below its modest 12 percent target for 2020.
Even with the rest of the bank performing in line with expectations, the latest admission represents a blow to Oudéa’s plan to chase growth by expanding SocGen’s top line faster than expenses. Ongoing market volatility could also lead to further revenue wobbles, or higher risk weighted assets.
More broadly, the warning underscores why all of Europe’s major investment banks except UBS are valued at less than their net assets. SocGen, which now trades at around 0.6 times its tangible book value, is no exception. Oudéa’s latest missive gives shareholders little reason to revisit their scepticism.
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