Investment banking: Société Générale still sees profit in complexity
Bank has had good results by sticking to its derivatives skills; Michel Péretié, head of CIB, is seeing first fruits of investment in M&A advisory
Rather overlooked amid the disappointing investment bank results being reported in the final months of 2010, Société Générale’s corporate and investment banking division surprised analysts and investors with better than expected earnings across its businesses in the third quarter compared with the second, boosting returns for the bank as a whole. "The 18% beat was due in large part to CIB, thanks to better than expected revenues in fixed income and financing, as well as lower provisions," pointed out analysts at KBW.
The French bank will not present fourth-quarter 2010 and full-year results until February but analysts have been upgrading their forecasts. KBW increased its 2010 earnings a share estimate from €4.29 to €5.24 and to €6.44 for 2011, while estimating a return on equity of 13.5% for 2011 on the basis of 8% capital.
CIB revenues by business line
Source: Company, KBW estimates
Long known for its strengths in equity derivatives, the bank has diversified in the past two years by improving its fixed-income derivatives capabilities and building up its conventional financing and advisory business. While overhauling its risk management in the wake of the Jérome Kerviel affair, it has continued to devise complex structured solutions, while some competitors have made a great show of embracing simplicity.