SocGen, France’s second biggest bank, hoped that this would calm jittery markets and sooth analyst fears of extraordinary Q4 losses. While SocGen’s shares have pursued the same downward trend as other European and US banking stocks over the last few months –dropping by 30% in the two weeks prior to the statement – the news helped the stock bounce back by 5%.
Profits driven by retail
Management said that the €2bn net profit would mainly come from the retail bank and that the investment bank would likely break even. The asset management business continued to suffer outflows and depreciations, said the statement.
The bank maintains that the relatively solid performance of the investment bank in Q4 2008 was helped by the risk reduction strategy put in place after rogue trader Jerome Kerviel placed allegedly unauthorised trades on the futures markets which led to a loss of €3.4bn in the investment bank.
Still taking state aid
SocGen has said it will take €1.7bn from a second tranche of €10.5bn in state aid for French banks, which the government announced late on 20 January.
In December, the state provided €10.5bn in subordinated loans to BNP Paribas, SocGen, Credit Agricole, Caisse d’Epargne, Banque Populaire and Crédit Mutuel.
Banks can choose between taking subordinated debt or preference shares without voting rights. Preference shares – which will carry a coupon rate doubt that of the subordinated debt – will be more expensive, but they will count towards Tier one capital, which excludes any debt type instruments.
With the second tranche of aid, comes more conditions. In the same way as before, banks who take up the capital must increase annual lending by 3-4%, but in addition, bank bosses must now agree to forego bonuses, limit dividend payments and pldege to finance €7bn of export contracts.
