By Maya Nikolaeva and Matthieu Protard
France's third-biggest bank announced a management reshuffle that surprised investors and reported weaker investment bank earnings. The shake-up comes several months after it crafted a new three-year plan, aimed at boosting returns and protecting dividends.
"We are just starting 2018. In terms of results, they do not reflect market expectations of this year. But with 10.9 percent return on tangible equity...(it) is encouraging," Chief Executive Frederic Oudea said.
"It's just the beginning of the journey...it will take a few quarters".
The reshuffle, announced on Thursday evening, sees the re-appointment of Oudea for a new four-year term and the set-up of a new top management team of four deputy chief executives. It follows the departure, several weeks ago, of a deputy chief executive in charge of investment banking operations.
The new team will be under pressure to boost profitability in the face of tougher regulation and client demand for increasing investment in new technologies at a time when French retail banking revenues decline and low volatility hurts trading activities.
"How come the replacement of the head of investment banking ends with a full re-shuffle of operating management just 6 months after the Investor day?" analysts at Jefferies said in a note.
SocGen shares were down 6.4 percent at 1303 GMT, the worst performer in the French equities index. Its price to book ratio, net assets divided by the number of shares, stood at 0.6 versus 0.9 at EU peers.
SocGen reported on Friday a 14 percent rise in first-quarter net income to 850 million euros, that came above analysts' estimates of 821 million euros, according to a Reuters poll of 5 analysts.
However, SocGen's quarterly revenue came in weaker than expected, falling 2.8 percent to 6.29 billion euros, compared to 6.48 billion expected by analysts.
INVESTMENT BANK WEAKNESS
Its corporate and investment bank was a weak spot with revenue down 13.4 percent and net income falling 56.9 percent, impacted by a "strong negative forex effect".
Equity trading also declined despite a broad improvement in this area across other international banks, and in contrast to its French peer BNP Paribas, whose business is traditionally skewed to fixed income activities in Europe.
SocGen said "this lower performance in relation to the industry can be attributed to our business mix, which is more geared towards structured products, and our geographical mix, which is more focused on Europe".
SocGen added that it had room to reallocate resources from one activity to another within its investment bank and that IT technology investments would lead to further cost cuts in support functions, such as off-shoring, that should help support profitability.
Under its three-year plan, SocGen aims to improve the return on net equity at its to 14 percent from 10.8 percent in 2017, when revenues fell on the back of low market volatility.
"With a renewed General Management team, the group is more confident than ever of its ability to successfully implement all the current transformation projects and meet its strategic and financial objectives," Oudea said in a statement.
The bank kept litigation provisions stable at 2.3 billion euros ($2.75 billion) and said a final agreement with relevant authorities was expected in the coming days or weeks.
"The outlook is defiant but is it credible?" analysts at Kepler Cheuvreux said in a note.
($1 = 0.8358 euros)
(Reporting by Maya Nikolaeva and Matthieu Protard; Editing by Elaine Hardcastle)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)