By Pietro Lombardi and Patricia Kowsmann
French banking giant Société Générale SA, stung by coronavirus-related trading losses earlier this year, plans a retreat in its investment banking unit and posted a surprise loss Monday, even as rivals thrived on the increase in stock and bond trading.
While competitors such as Goldman Sachs Group Inc. and Morgan Stanley have gained from customers moving their investments around to adapt to market shifts under the pandemic, Société Générale took losses in one of its specialties, creating and selling complex investment products.
The bank reported Monday a EUR1.26 billion ($1.48 billion) net loss for the period, compared with a profit of EUR1.05 billion a year earlier. Much of the loss was related to EUR1.33 billion in charges related to the reduction in value of its investment banking business and deferred tax assets that it no longer expects to recover.
Revenue from equities trading fell 80% in the second quarter from the year earlier, lagging rivals who showed gains in revenue or more modest declines.
Société Générale, in addition to being a major French retail bank, concentrates on producing and trading complex derivatives related to the stock market. It took major losses in the first quarter when the market panic related to the coronavirus pandemic upended trades in that business.
The bank said it had concluded a review and will cut back on risk-taking in such structured products tied to the performance of stocks and bonds. Lower risk-taking at its trading operations will mean it will be less likely to lose money when markets are dislocated. But will also result in a revenue decline of between EUR200 million to EUR250 million, it said.
Investment products tied to those structured trades promise investors high returns when markets were calm, and generate strong fees for the bank. But the wild and violent swings in markets in March and April left the bank exposed.
Société Générale has suffered most because companies canceled dividend payments to save money. Some of Société Générale's structured products are tied to shareholder payout.
The bank had been among the worst performing major bank stocks in Europe this year. Shares have fallen almost 60% since the beginning of the year and were down 3% Monday. Investors are deeply skeptical of its ability to generate profits and avoid trading losses. Its shares are valued at just 16% of book value, compared with 44% for rival BNP Paribas SA or 124% for JPMorgan Chase & Co.
BNP Paribas SA, which also sells complex structured products to customers, reported strong second-quarter profits last week, attributing it to a diversified business model.
Société Générale's Chief Executive Frédéric Oudéa said business improved in the second half of the quarter when there was a rebound in activities from mid-May.
Net banking income, the bank's top-line revenue figure, fell almost 16% to EUR5.3 billion. Analysts had forecast a small profit and slightly higher revenue.
Like other European banks, Société Générale took substantial provisions for soured loans, as the impact of the coronavirus shutdowns rippled through the economy. It stowed away EUR1.28 billion for provisions, up from EUR314 million a year earlier.
Bank officials, however, said retail activity was back to normal in June after falling sharply during the lockdown in France.
Write to Pietro Lombardi at Pietro.Lombardi@dowjones.com and Patricia Kowsmann at firstname.lastname@example.org