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(Bloomberg) — Societe Generale SA missed analysts’ estimates in the third quarter as the French lender wrote down the value of some businesses and wrong-way hedges weighed on lending income in France.
The Paris-based bank said Friday that revenue fell 6.2% from a year earlier while net income slumped 80%, both coming in well below the average estimate in a Bloomberg poll of analysts. The results reflect €610 million ($648 million) in one-time adjustments, including writedowns on the goodwill of various units and a provision for deferred tax assets.
Profit also fell because of hedges adopted by SocGen’s French retail unit to counter the effect of low interest rates. Those bets backfired in recent quarters, with the negative impact peaking in the third quarter. SocGen, which previously guided for a 20% decrease in net interest income in its home market for the year, now said the drop may exceed that.
The results may add to pressure on Chief Executive Officer Slawomir Krupa, who has struggled to win over investors in his six months in role and lift a stock that’s trading at the biggest discount to book value among European peers. In September, he outlined a strategic plan that prioritizes capital strength over revenue growth, profitability and shareholder returns, sending the stock down 12% in a single day.
Since Krupa took over in May, SocGen shares have lost 11%, leaving them trading at 0.25 times book value, the cheapest in a Bloomberg index of European financial services companies.
The bank’s CET1 ratio, a key measure of its financial strength, stood at 13.2% at the end of September, compared with 12.9% expected by analysts.
To help build capital, the new CEO plans to cut costs and improve efficiency. He’s indicated he wants to better allocate capital and cut back on operations that don’t fit. The bank already announced disposals in four African countries, with a fifth unit put under review. SocGen also hired Lazard to advise on a possible sale of its equipment finance unit, known as SGEF, Bloomberg News reported last month.
SocGen booked a goodwill impairment of €340 million on various businesses outside France during the third quarter, along with its equipment finance activities. A provision for deferred tax assets added €270 million to the bill.
The miss on revenue and profit overshadowed a relatively solid performance in the investment bank, which Krupa headed before taking over as CEO. Equities trading declined 1% from a year earlier and fixed-income declined 4.6%, both better than most of SocGen’s European peers. The financing and advisory business had a record third quarter, SocGen said, with revenue up 2.1%.
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