The FINANCIAL — Société Générale reported a record fourth-quarter net loss of €3.3 billion (£2.5 billion) last week in the wake of the rogue trader scandal and net profit of €947 million last year, down from €5.2 billion in 2006 — a fall of 82 per cent.
A preliminary report by a three-member panel appointed in the wake of the scandal found that the bank missed 75 warning signs between June 2006 and the start of this year that should have alerted managers of the jailed trader Jérôme Kerviel to his unauthorised actions. The 31-year-old Frenchman sent the bank to a €4.9 billion trading loss after running up bets worth €50 billion on the future direction of various European indices.
But SocGen said, however, the Group has generated positive net income of EUR 947 million for 2007 due to its diverse portfolio of activities and the solidity of its revenues.
“Against the backdrop of the financial crisis, the Group produced resilient revenues in 2007 due to its robust platform of activities and sound development model. The retail banking networks achieved good performances, while Financial Services, Private Banking and Securities Services enjoyed strong growth. During H2 2007, Corporate and Investment Banking was affected by the repercussions of the US financial crisis and Asset Management by the liquidity crisis”.
“Moreover, the Group has suffered the effects of a fraud committed by a trader within its capital market activities. The fraudulent positions, uncovered in January 2008, were unwound in a manner that respected the integrity of the markets and the interests of shareholders. They resulted in an exceptional loss for the Group of EUR 4.9 billion”.
The Board of Directors has decided to propose a dividend of EUR 0.90 per share for the 2007
financial year to the Annual General Meeting. This is consistent with the Group's target of a 45%
payout ratio.
After a buoyant first half, the global economic and financial environment suddenly deteriorated from the summer 2007. However, world growth remained strong in 2007, driven by emerging countries.
Group said growth in the United States slowed whereas it remained healthy in Europe. The rise in the price of oil and agricultural products also led to the resurgence of inflationary fears.
“For the Group, 2007 was marked by: excellent results for Retail Banking, Private Banking and Securities Services, the effects of the serious financial crisis on Corporate and Investment Banking and Asset Management activities, the exceptional fraud, the pre-tax cost of which amounts to EUR -4.9 billion”.
“Despite these two negative impacts, the Group generated net income of EUR 947 million. 2007 ROE after tax stood at 3.6% (17.1% excluding the fraud). Group net income for Q4 07 amounted to EUR -3,351 million”.
Net banking income
The Group's net banking income for 2007 was down -2.8% vs. 2006 (-2.2% in absolute terms), at EUR 21.9 billion.
The strong performance of the French Networks (+4.8% vs. 2006 excluding the impact of the
PEL/CEL provision and excluding the capital gain from the disposal of Euronext shares), the
significant growth of International Retail Banking (+17.1% vs. 2006), Private Banking (+27.2% vs. 2006) and Securities Services (+32.2% vs. 2006), and the growth in Financial Services (+15.1% vs. 2006) helped limit the consequences of the decline in Corporate and Investment Banking (-32.8% vs. 2006) and Asset Management (-14.6% vs. 2006) on the Group's net banking income as a result of the write-downs booked.
Net banking income for Q4 07 was down -32.6% on the same period in 2006 (-31.6% in absolute terms) at EUR 3,880 million.
Operating expenses
The increase in operating expenses (+4.0% vs. 2006) reflects the continued investment needed for the Group's organic growth, strict control of operating costs and changes in the businesses'
performance-linked pay.
“The Group continued to improve its operating efficiency in 2007. The Retail Banking Networks
together with Private Banking and Securities Services saw their C/I ratio decline in 2007. The C/I ratios for Corporate and Investment Banking and Asset Management increased in 2007 as a result of the write-downs and losses recorded primarily in the second half. Overall, the C/I ratio stood at 65.3% (vs. 61.1% in 2006)”.
The Group's C/I ratio stood at 88.0% in Q4 07 (vs. 63.3% in Q4 06).
Operating income
The Group's 2007 gross operating income was down -13.6% vs. 2006, at EUR 7.6 billion. It totalled EUR 464 million in Q4 2007.
At 25 bp of risk-weighted assets, the Group's cost of risk in 2007 was similar to 2006. It was stable for the French Networks but lower for International Retail Banking. The higher cost of risk for Financial Services can be attributed to the growing share of consumer credit in emerging countries. Having recorded the impact of the financial crisis in the form of lower revenues, Corporate and Investment Banking made a EUR 56 million write-back in 2007.
The Group's cost of risk for Q4 07 amounted to 28 bp (vs. 38 bp in Q4 06).
Overall, the Group generated operating income, excluding the net loss on unauthorised and
concealed trading activities, of EUR 6,713 million, down -17.2% in 2007 vs. 2006 (-16.5% in absolute terms).
Operating income for Q4 07, excluding the net loss on unauthorised and concealed trading activities, amounted to EUR 163 million.
