SocGen to cut bonuses and scrap dividend after tough Q3
By Lionel Laurent and Matthieu Protard
SocGen, the first French bank to scrap its dividend since regulators adopted stricter capital rules earlier this year, reiterated it would plug an estimated 2.1 billion euros ($2.9 billion) capital shortfall without a capital increase or state help.
It also said it had unloaded 10 billion euros in toxic assets as it battles to reduce risky exposures.
"SocGen's priority lies with capital enhancement. We want to be in line with these (capital) objectives as quickly as possible," Chief Executive Frederic Oudea said on a conference call, adding there would be a significant reduction in bonuses paid to employees at its corporate and investment bank.
Weakness in investment banking helped depress third-quarter profit 31 percent to 622 million euros, compared with a forecast for 858 million in a Reuters poll.
But SocGen shares -- which are down 60 percent in the past six months -- rallied 7.2 percent by 0900 GMT (4 a.m. ET), outperforming a 2.0 percent gain in the sector <.SX7P>.
"At these valuation levels I really don't think profit is the biggest concern, it's more that they take the steps to strengthen their balance sheet and de-risk it," said a London-based analyst.
SocGen is cutting debt and selling assets at its investment bank, a crucial driver of profit but which is struggling amid volatile markets. The division's profit slumped 83.5 percent in the third quarter to 77 million euros, with fixed income especially hard hit by the sovereign crisis.
ASSET SALES
"(We are) targeting a reduction of costs next year of something between 5 and 10 percent," he said. "It's a very strict plan of cost reduction for next year."
Like larger French rival BNP Paribas <BNPP.PA>, SocGen has announced sweeping asset sales to cut debt and soothe jittery investors. It said the sale of 10 billion euros in toxic assets between July and November had cost it 121 million euros on a pretax basis.
The bank's toxic asset portfolio, which includes mortgage-backed securities, stood at 18.6 billion euros at the end of October, the bank said.
SocGen's French retail unit performed solidly, with profit up 15 percent, driven by growth in mortgage lending and signing up new customers.
SocGen raised 4.1 billion euros in long-term funding in the third quarter at a spread of 100 basis points, it said.
The bank wrote down the value of its Greek debt holdings by 60 percent, in line with what its larger French rival BNP has done. It also wrote down the value of some consumer-credit activities by 200 million euros.
SocGen is the latest European bank to say it had cut exposure to euro zone sovereign debt. Between September and October its holdings of peripheral euro area debt fell to 3.43 billion euros from 3.65 billion. However, holdings of Italian debt rose slightly, to 1.57 billion euros, from 1.55 billion.
SocGen is also exposed to Greece via its local subsidiary Geniki, part of an international retail network that saw profit fall almost 40 percent in the quarter.
($1 = 0.727 euro)
(Editing by Christian Plumb and Dan Lalor)