Ukraine Scapegoated As Fixed Income Revenue At SocGen Plunges Over 25%

When Obama repeatedly chanted "costs" should the Kremlin continue to ignore him, it appears he was referring to western corporations, because overnight we got the first batch of companies scapegoating no longer snow in the winter but - what else - the Ukraine.

Leading this morning's scapegoat parade is SocGen, which following in Barclays' footsteps reported a 13% tumble in its Q1 profit, plunging to €315 million from €364 million. The reason for this huge hit to profits apparently was a €525 million ($731.26 million) write-down at its Russian bank - the same bank which, as recently as April 11, saw SocGen "increase its stake in Russian subsidiary Rosbank which it said was part of a long-term commitment to Russia. The deal comes as Russia's economy is under pressure partly as a result of sanctions imposed by the United States and Europe to protest against Moscow's annexation of Crimea."

So SocGen was dumping money into a Russian subsidiary well after the Ukraine conflict  had begun, knowing quite well it would be "forced" to take a Rosbank charge mere weeks later! Why yes, of course.

WSJ reports:

While Russia today accounts for only about 5% of the group's total revenue, Société Générale once had big ambitions in the country. It hoped its local lender Rosbank would help drive growth over the next few years as Europe struggled to pull itself out of the financial crisis.


Société Générale bought a 20% stake in Rosbank for $634 million in 2006. Since then it has spent over €4 billion building a 99.4% stake, integrating its back-office and technology platforms, shaking up management and cutting more than 2,500 jobs.


But the French bank's efforts have been slow to pay off. It suffered a setback last year when Rosbank Chief Executive Vladimir Golubkov stepped down after he was charged with bribery by Russian authorities.

We wonder if SocGen will also blame the absolute collapse in its fixed-income revenue - that key variable for New Normal bank profitability - also on Russia. Because once the ability to addback massive charges on unrelated Russian assets ends, SocGen may finds itself in trouble. From Reuters:

SocGen's corporate and investment bank, which is traditionally weighted more towards equities trading than fixed income, was not immune to the fixed-income slump that has hit rivals such as British bank Barclays.


SocGen said fixed-income revenue fell 25.3 percent in the first quarter, while equities revenue rose 9.3 percent. Overall, its investment banking and asset management division saw earnings drop 15.2 percent to 481 million euros.

But how was the loss not bigger? Simple: SocGen did what ever other self-respecting and insolvent US bank does every quarter - balance sheet gimmickry. "French retail banking fared better thanks in part to a 28 percent drop in loan-loss provisions. SocGen's international retail bank, however, swung to a loss on the Russian charge." That's ok, that Russian charge was also added back, allowing investor to ignore the elephant in the room: namely that aside from vacuum tubes and central banks, virtually nobody is trading any more.

As for the rest, blame it on Ukraine.


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