Q4 was a notoriously difficult quarter for investment bank trading revenues, as the explosion of volatility caught banks flat-footed, despite an old truism on Wall Street that the sell-side typically benefits from the frenzied trading that typically comes with it. Yet, as global equities embarked on a torrid rally last quarter, it appears trading revenues haven't improved in Q1, as both volatility and trading volume have fallen sharply.
Hence, after reports about impending cuts to its commodities business and its prop-trading arm surfaced earlier this year, it appears SocGen has finally made it official: The French bank said Tuesday that it's planning to cut 1,600 investment-banking jobs. Most of the cuts - close to 1,200 positions - will be positions at its global banking and investor solutions division, according to Bloomberg.
While 750 of the cuts will focus on France, the rest will be spread across the bank's international hubs in London and New York. All told, they represent about 8% of the bank's GBIS unit, which houses its trading divisions and has a total headcount of about 20,000.
The cuts follow CEO Frederic Oudea's decision to abandon his growth goals for the bank. The CEO's failure to reverse a 40% drop in the bank's share price over the past month have led to scorching criticism of his tenure, most notably by "bond king" Jeffrey Gundlach. Oudea, who has led the bank for 11 years, is facing a shareholder vote on his renewal at the bank's May meeting.
Fresh 5 year low share price for tanking SocGen as Oudea continues to have no idea what he is doing except running the bank into the ground.— Jeffrey Gundlach (@TruthGundlach) February 7, 2019
Achieving more of the SocGen definition of “success” hapless Oudea announced today he is weighing cutting 1000’s of investment banking jobs.— Jeffrey Gundlach (@TruthGundlach) February 23, 2019
Striking a relatively optimistic tone, one analyst said the cuts suggest the bank is on track to deliver on Oudea's new target for a return on tangible equity of between 9% and 10% by 2020, down from a previous target of 11.5%.
“This news confirms that management is on a target to deliver the plan; however, the focus at first-quarter results will be on the,” bank’s financial position, Jefferies analysts Maxence Le Gouvello Du Timat and Martina Matouskova said in a note to investors.
The Financial Times reports that the cuts will focus on less-profitable businesses like commodities, prop trading, and fixed-income as the bank focuses on what it does best: namely, equity derivatives trading.
It will close its commodities business and proprietary trading unit and reorganise its fixed-income division to make it more profitable, particularly the underperforming rates, credit, currencies and prime services operations, as was first flagged in February. The international retail unit is also being overhauled.
Unfortunately for the carbon-based traders who will soon be carrying their possessions out of the office in a cardboard box, there are plenty of able-bodied machines ready to take these jobs.