Societe Generale first-quarter results take a hit from low volatility in Europe and new regulation

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Societe Generale reported first-quarter net income that beat market expectations Friday, but the French bank highlighted two major headwinds that led to disappointing revenue numbers across different divisions.

Here are the highlights:

  • Revenues: 6.2 billion euros ($7.4 billion) in the first quarter of 2018; vs. 6.48 billion expected in a Reuters poll of analysts.
  • Operating income: 1.3 billion euros ($ 1.56 billion) in the first quarter of 2018, vs. 1.2 billion euros in the first quarter of 2017

The bank announced group net profits of 850 million euros ($1 billion), slightly above last year’s performance. Net banking income stood at 6.294 billion euros for its first quarter of 2018 — a drop of 2.5 percent from a year ago. This was due to a weaker performance in its domestic retail activity, as well as lower revenues in its global banking and investor solutions division.

Speaking to CNBC, Frederic Oudea, chief executive officer of Societe Generale, explained what caused the slowdown.

“We saw … in Europe lower commercial activity, probably in this environment, where we lag a little bit in this transition towards a more normal rate policy and also probably with the implementation of Mifid which might have slowed the commercial activity,” he told CNBC’s Joumanna Bercetche.

Mifid II is a regulation that came into place at the start of the year and essentially leads to a separation of the research and the trading sides of a financial institution.

Oudea also said that, in contrast, the bank’s activities in the U.S. were much stronger.

“In the beginning of this year, all the events happened in the U.S.. Benefits from the tax cuts, the volatility on certain tech stocks … the VIX events…probably Europe lags the U.S. for a few quarters in this normalization of volatility,” he said.

As other European rivals scale down their investment banking operations, most notably Germany’s Deutsche Bank, the French bank plans to increase its market share.

“We have in Europe a long term opportunity, more capital markets are needed, it’s a direct result of the regulatory framework. Again it’s not a next quarter evolution, it might be a 10-year evolution but we are one of the very few European banks with a clear credibility,” Oudea told CNBC.

Meanwhile, SocGen has been in negotiations with U.S. authorities over two legal disputes: One involving the Libor interest rate benchmark and the second involving transactions with Libya.

Oudea told CNBC that the bank is in “very active discussions with the authorities to settle in the coming days or in the coming weeks” regarding these legal disputes. He added that the monetary impact that will come from both these cases will be in line with the bank’s provisioning.

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