Last year, Societe Generale, a French investment bank, missed out on a payout promise from its CEO, Frederic Oudea, as the bank’s profits fell. Oudea had promised to pay out a dividend to shareholders if the bank achieved certain financial targets, but the bank’s fortunes were hit by lower trading volumes, a decline in its investment banking activities, and the impact of the coronavirus pandemic. In the end, the bank only paid out a smaller dividend than had been promised.
(Bloomberg) – Societe Generale SA has failed to meet its promise to pay out half of its underlying earnings to shareholders, even after its fixed income dealers presented CEO Frederic Oudea with a larger-than-expected profit.
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Revenue from buying and selling fixed income and currencies rose 56% in the fourth quarter, beating analyst estimates and all previous key rivals. This and a strong performance in Financing & Advisory offset weak performance in Equities and French Retail.
But after the Paris-based company suffered a multibillion-euro hit when it exited Russia last year, it decided to keep a bigger chunk of profits to bolster capital and around €1.8 billion through dividends and return buybacks. That’s about a third of the underlying profit.
The decision comes at a time when rivals are trying to reward investors as they emerge from years of negative interest rates and subpar profitability. BNP Paribas SA announced on Tuesday that it will repay 5 billion euros through buybacks as it spends excess cash from the sale of its US unit. It caps another tumultuous year for Oudea, who has put the finishing touches to his legacy before he is due to hand over the baton to investment bank chief Slawomir Krupa in May.
The year “marked a pivotal period for the group” as it adapted to “an uncertain and complex environment,” Oudea said in a statement. SocGen, he said, “resolutely moves into 2023, a year of transition in many ways.”
SocGen announced the results ahead of the start of regular trading in Paris. Shares have underperformed BNP and an index of European banks over the past 12 months.
Revenue from trading fixed income, traditionally a smaller business for the company than equities, rose 56% year over year. That’s better than the average 28% gain for the largest Wall Street companies and the 45% rise for BNP. Equities lagged slightly behind, down 12%.
SocGen’s financing and advisory unit weathered the slump in business execution that hit many of its peers. The business, which includes transaction banking, saw revenue grow 17%.
The lender proposed a cash dividend of €1.70 per share to be paid on last year’s earnings, along with a €440 million share buyback. Had it paid out half of its underlying annual profit of €5.62 billion, that would have been more than its reported net income.
Such a move might have been difficult to explain to regulators at the European Central Bank, who have urged banks to exercise caution when deciding on shareholder payouts given the many risks to the economy. SocGen provided 413 million euros for loans in the fourth quarter, less than analysts had expected but still nearly five times the amount from a year ago.
A company spokesman said the payout decision reflected a desire to balance shareholder rewards and the strength of the balance sheet. A key capital metric, called the CET1 ratio, came in at 13.3%, higher than what analysts had expected, assuming full implementation of stricter regulatory standards. SocGen plans to return to its regular payout policy in the coming years, the person added.
Chair Lorenzo Bini Smaghi, who oversees the Executive Board that decides on payout proposals, has been among the most vocal critics of the ECB’s de facto dividend ban during the Covid-19 pandemic. Led by the former ECB politician, the board even proposed a payout in 2021 after the lender suffered its first loss-making year in decades. In October, he wrote to the central bank to protest requests by officials to attend bank board meetings, Bloomberg reported.
Oudea, the longest-serving CEO of a major lender in the European Union, restructured its equities business after pandemic losses, allowing the company to bounce back with record profits the following year. Russia’s invasion of Ukraine last year brought another challenge, prompting a pullout from the country that resulted in a €3.3 billion loss in pre-tax profit.
To strengthen the bank, Oudea merged the French retail networks. But local laws that limit how much lenders can raise mortgage rates have made it difficult for French lenders to take advantage of higher interest rates as quickly as competitors in other countries. Sales at the domestic retail business fell slightly year-on-year, with SocGen forecasting further declines this year.
(Adds context to previous dividend decisions in last three paragraphs.)
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