It wasn't long ago that Société Générale was cutting jobs and bonuses after a woeful 2020. Unlike Credit Suisse, which is now entertaining regrets about all the people it previously let go, SocGen's job cuts seem to have worked a treat.
The French bank released its results for the second quarter of 2021 this morning. It's as if 2020's €1.26bn loss never happened.
SocGen's equities sales and trading revenues were €758m in the second quarter of 2021, up from just €142m a year earlier. Net income for the entire global markets and investor solutions business was €268m, up from a loss of €27m in the second quarter of 2020.
SocGen is back.
Except, it's more than just back. - Equities sales and trading revenues in the second quarter of 2021 were higher than in any second quarter for the past four years. Profits in the global markets and solutions business were at their highest since the second quarter of 2018.
This is partly down to buoyant markets. - Bank of America and Citi reported year-on-year increases of 37% and 33% in their equities sales and trading revenues in the second quarter. SocGen itself today attributed its equities success to "favourable" market conditions and a "normalisation of the environment."
However, SocGen was able to take advantage of strong markets despite big cuts to its equity derivatives business and the removal of around 640 jobs in its investment bank at the end of last year. There were also cuts to the 2020 bonus pool which left SocGen's investment bankers and traders looking distinctly underpaid compared to rivals.
The implication is that none of this mattered. Thanks to the cuts, costs in SocGen's markets and investor solutions business are 23% lower than last year and around 20% lower than their long term norm. And revenues are up regardless.
This hasn't gone unnoticed by the bank. “These results are the fruit of extensive work undertaken for several years to enhance the intrinsic quality of the franchises,” said Frédéric Oudéa, the bank’s chief executive today.
What did SocGen do right? It focused on cutting people working on the more complex structured products, including derivatives like autocallabale products (multi-year savings products that can include complicated embedded options to boost investor returns), where last year's losses took place. It also allowed some those leaving to depart on the sorts of generous voluntary redundancy packages it seems to offer whenever there are cuts to be made.
Naturally, there was some disgruntlement. Earlier this year there was an outflow of equity derivatives traders in both Paris and London, seemingly as a result of uncertainty and reduced bonuses. Thierry Marcolivio, the former head of cross asset institutional sales for Italian clients, went to Unicredit; Sebastien Cortez, SocGen's global head of algo execution and quantitative market making went to Jump Trading
Today's results suggest none of this mattered. SocGen's new-new heads of its global markets division are riding high. Cutting to grow is back in fashion.
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