Societe Generale chief defends controls after Hong Kong trader's unauthorized bets

By Louis Goss

Societe Generale chief executive on Friday spoke out to defend the lender's risk control systems against criticism from one of its former traders who was fired for making unauthorized bets in Hong Kong.

Slawomir Krupa, who took up his position as CEO of France's third biggest bank in May 2023, said the unauthorized trading was detected by Societe Generale's control systems, after ex-trader Kavish Kataria on Thursday accused the bank of making him a "scapegoat," in a post on LinkedIn

In his post, Kataria said Societe Generale had failed to take responsibility for its control systems failing to pick up on the unauthorized trades, which he said made the bank EUR2 million over a four month period, trading on Indian index options.

In a call with investors, Krupa hit back at Kataria's allegations, as he said referred to the situation as an incident which had "no impact on clients and which was identified by our control framework and it was dealt with."

In 2008, Societe Generale lost EUR4.9 billion closing positions made by rogue trader Jérôme Kerviel who was sentenced to five years in prison in 2010. Kerviel previously also claimed he was being scapegoated by the bank.

"We obviously have analyzed the incident and made adjustments and improvements like we do all the time," Krupa said in a call with investors Friday.

The CEO comments came after the French bank reported a sharp drop in its net income in the first quarter of 2024, as its revenue dipped slightly compared to a year ago, and its profits were hit by an underwhelming performance from its retail division.

The French bank's bottom line suffered due to a 77.7% drop in income from its French retail banking division, to EUR27 million, and a 42.9% drop from its international retail arm, to EUR272 million, as customers shifted their money into higher-interest savings accounts.

A "very good performance" from its investment banking business, however, helped offset the lower income from its retail arm, and saw the bank generate net income worth EUR680 million, versus the EUR574 million predicted by five analysts, information from FactSet shows.

Societe Generale posted a 26.4% increase in net income from its investment banking unit, to EUR690 million, even as revenue from the division fell 5.1% compared to the historic highs seen in the first quarter of 2023.

Looking ahead, Societe Generale held its full-year guidance, as it beat analysts' expectations for the first three months of 2024, even as its revenue fell 0.4% and its firm-wide net income fell by 21.7%.

Shares in Societe Generale (FR:GLE) fell 5% on Friday having increased by14 % over the previous 12 months.

Barclays' analysts said Societe Generale's first quarter results are "encouraging signs of recovery" as the bank's CEO has pushed to boost its performance since taking up the top position in May 2023.

Krupa's turnaround plan has seen Societe Generale seek to streamline the bank and increase its share price, by offloading its Moroccan banking business, which it agreed to sell to Saham Group for EUR745 million last month.

Credit Agricole, France's second largest lender, also outstripped analysts' expectations on Friday, as it posted a 42.8% surge in net income to EUR2.38 billion, compared to the EUR1.59 billion forecast by eight analysts polled by Factset.

The Montrouge headquartered bank said it is now on course to meet its 2025 financial goals this year, as its group-wide revenue increased by 6.7%, to EUR9.53 billion.

Shares in Credit Agricole (FR:ACA) increased 3% on Friday having gained 39% over the previous 12 months.

The bank added 512,000 new customers to its retail banking business, including 409,000 in France and 103,000 in Poland and Italy.

French banks have, however, seen less benefit from higher interest rates due to rules requiring them to pay out more to depositors.

The French rules have seen the country's banks forced to pay out higher interest rates to depositors than their European rivals, in what has led to a 2%-3% reduction in income for France's retail banks, according to Fitch Ratings.

-Louis Goss

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05-03-24 0807ET

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