Understanding our 2014 Q1 results
Frédéric Oudéa's editorial
In Q1 14, Societe Generale continued with its transformation strategy and demonstrated the robustness of its customer-focused banking model. In an economic climate which remains uncertain, the Group posted a favourable operational performance on the whole. The commercial business continued to perform well, in particular in Retail Banking. Thus in France, against the backdrop of a slow economic improvement, the expansion of the customer base and deposits remained strong. Revenue remained stable year-on-year (despite the drop in interest rates and the decline in overdraft fees imposed by French banking law).
In Q1 14, Societe Generale continued with its transformation strategy and demonstrated the robustness of its customer-focused banking model. In an economic climate which remains uncertain, the Group posted a favourable operational performance on the whole.
The commercial business continued to perform well, in particular in Retail Banking. Thus in France, against the backdrop of a slow economic improvement, the expansion of the customer base and deposits remained strong. Revenue remained stable year-on-year (despite the drop in interest rates and the decline in overdraft fees imposed by French banking law). In International Retail Banking & Financial Services, revenue rose vs. Q1 13 with still healthy deposit inflow and solid performances by Financial Services to Corporates and Insurance. Revenues were resilient in Global Banking & Investor Solutions, in a market environment characterised by low volumes in fixed income activities.
This solid commercial performance, along with a disciplined management of resources and a substantial drop in the net cost of risk, allowed the Group to post a higher operating income. The Group continued to reinforce the structure of its balance sheet and its prudential ratios, with a Common Equity Tier 1 ratio of 10.1% at end-March 2014.
Q1 14 was marked by the emergence of the crisis in Ukraine, with repercussions on the Russian economy, which experienced a sharp slowdown. The decline in the rouble, growing uncertainty concerning the environment and delayed performances prompted the Group to write down goodwill on Russian activities, with a negative impact of EUR -525 million on Q1 14 Group net income (and with no impact on the Group's capital ratio as all goodwill is deducted according to prudential regulations). The Group however reiterated its wish to develop on the Russian market which remains attractive nonetheless in the long term, by ensuring a strict management of credit risk and providing local funding for sales growth. In a scenario of gradually easing tensions, the Group aims to achieve satisfactory profitability on this market in 2016. The Group also reiterates that Russia represents 3% of its global exposure and that it has no material exposure to Ukraine.
Group net income totalled EUR 315 million for the quarter (EUR 940 million before the goodwill write-down on Russian activities and the non-economic impact of the impairment of own debt). In Q1 14, the Group also pursued its strategy to optimise capital allocation, with the announcement of the disposal of its Private Banking activities in Asia. The acquisition of the entire Newedge Group was finalised, all the regulatory authorisations having been obtained.
At a time when Societe Generale is celebrating 150 years of serving the economy, we are preparing the presentation, on May 13th, of our strategic priorities and financial objectives for the next three years. We are aware of the uncertainties which still remain and the need to continue to adapt our business lines. However, we are also determined to take advantage of the opportunities which will allow us to remain a loyal and reliable partner to our clients, and thus faithful to our vocation of relationship banking.
On this anniversary, dear shareholder, I would like to thank you for your trust and confidence.
Chairman and CEO
2014 Q1 key figures
EUR 5.8bn* (+3.3% vs. Q1 13)
-27.1%** vs. Q1 13
Sharp decline in the cost of risk
EUR 1.3bn* (+72.8% vs. Q1 13)
Improved operating income
* Excluding non-economic items (revaluation of own financial liabilities and DVA – debt value adjustment implemented following the application of IFRS 13).
Goodwill write-down on Russian activities Group net income* reduced by EUR 941M to EUR 416M
Book Group net income
10.1% Basel 3 Common Equity Tier 1 Ratio
** When adjusted for changes in Group structure and at constant exchange rates. The variations for revenues excluding the effect of the revaluation of own financial liabilities disregard any currency impact of this revaluation.
Results by business
In Q1 2014, Societe Generale provided further confirmation of the positive operating momentum of its activities, with solid revenues, stable costs and a lower cost of risk.
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