French Banking Giants SocGen And Natixis Oust Execs After Massive Q2 Losses

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by Tyler Durden
Wednesday, Aug 05, 2020 - 02:51 PM

While U.S. banks seemed to have no issues reporting sold earnings a week ago on the backs of stellar trading revenues offsetting a bad debt-driven plunge in net interest income, France's largest investment banks - Societe Generale SA and Natixis SA - posted giant losses.  SocGen posted a second quarter loss of 1.26 billion euros, its worst since 2008 when Jerome Kerviel nearly blew up the bank's trading desk. SocGen's crosstown neighbor, Natixis, posted a 57 million euro second quarter loss.

As a result, both banks have seen top executives pushed out.

SocGen CEO Frederic Oudea pushed out two of his top executives on Tuesday, including his head of investment banking, "just hours" after Natixis' Board of Directors pushed out CEO Francois Riahi, according to Bloomberg

The oustings show that not every bank in the world is dealing with the pandemic induced recession well. Much of these two banks' losses came from structured derivative products, prompting what Bloomberg calls the "personnel moves". The losses come in stark contrast not only to U.S. banks, but to overseas peers like BNP Paribas, who posted great results in its last quarterly report.

Jakub Lichwa, a credit strategist at Royal Bank of Canada in London, said: "Management change looks to me like a knee-jerk reaction at this stage that will obviously not address immediately the composition of the business. As with all restructurings, there will be more costs and uncertain outcomes."

Shares of SocGen responded by climbing 5% in Paris while Natixis rose 8.5% as a result. Each bank is down about 66% over the course of two years, outpacing a 44% drop for the Bloomberg Europe 500 Banks and Financial Services Index.

U.S. banks posted $45 billion in combined revenue from trading and dealmaking in Q2, which are record numbers for those businesses.

Some of the outgoing executives are names with significant experience in French banking. SocGen Deputy CEO Severin Cabannes had a decades-long track record at the bank. His peer, Philippe Heim, has 13 years of experience under his belt. 

Riahi had only been CEO for two years after being at the bank for more than a decade. He had previously worked as adviser to ex-President Nicolas Sarkozy and helped lead the bank's embrace "of risky derivatives and Asian and U.S. markets," according to Bloomberg.

Laurent Mignon, chairman of Natixis parent Groupe BPCE said: “If a group is to work well, for a strategic plan to work well, there needs to be full alignment in the governance. As soon as the divergence is acknowledged, it is best that things go the way they did.”

Bloomberg Intelligence analyst Jonathan Tyce said: “SocGen and Natixis have a similar problem -- credibility that they can appropriately restructure and reduce risk without significant income loss.”

This isn't the first time these banks have been stung by structured products, either. In 2018, Natixis lost $300 million when Korean structured products blew up. The banks are now trying to "stem the damage" and SocGen will "stop producing" the rogue products that went awry. 

Gildas Surry, a partner at Axiom Alternative Investments in London, concluded: “Both banks need to revisit their strategy in these businesses. They share the same skills amongst their ranks: sophisticated brains well versed in financial structuring. Unfortunately, the markets, as distorted as they are by the central banks’ liquidity, are not prone to this innovation.”