SocGen to cut €500m in costs from investment bank

Société Générale lowered its financial targets and will cut €500m in costs from its investment bank as it became the latest French lender to take action in the face of punishing market conditions.

SocGen said it will now aim for a return on tangible equity of between 9 and 10 per cent by 2020, down from a previous target of 11.5 per cent. It also said it would not meet its 3 per cent revenue growth target.

To deliver the additional cost savings by 2020, the bank will be cutting back on fixed income trading and reviewing its credit, rates and foreign exchange businesses as it looks to shore up its capital position and exit areas it thinks aren't delivering -- it will look to maintain its positions in equity derivatives. Revenues from fixed income, currency and commodities trading fell 28.8 per cent in the fourth quarter.

"We are making structural decisions, we are not just looking at 2018 but plugging the future tranches of additional capital," chief executive Frédéric Oudéa told the Financial Times. The bank is still aiming for core tier one capital ratio of 12 per cent in 2020. The ratio was at 11.2 per cent at the end of December.

"The capital markets were disappointing [last year] and . . . we now also have better visibility on an environment that will be more difficult going forward for capital markets," said Mr Oudéa. "What we have seen, clearly, is a change in our perspective on the political, financial, economic environment. It is today, across all of these lines, less favourable than 12 months ago."

SocGen expects "the revision of interest rate assumptions used in its estimates to have an impact of around €500m on the group's revenues in 2020". To push back it will look to reduce risk weighted assets by €8bn by 2020 and it will also speed up its asset sale programme.

The bank made the announcements as part of full-year results that saw revenue fall 6.3 per cent in the fourth quarter to €5.93bn, in line with expectations according to Reuters data. The investment bank was particularly badly hit, with revenues falling by 6.9 per cent and profit by more than 50 per cent in the fourth quarter. Equities trading revenues fell 15 per cent. SocGen said it would replace Frank Drouet as head of market activities.

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