SocGen squeezes investment bank in RWA purge
Global banking division sees RWAs fall –17% in 2019
In pursuit of a stronger capital ratio, French lender Societe Generale eradicated €31 billion ($34 billion) of risk-weighted assets (RWAs) in 2019, with its investment banking unit taking the bulk of the downsizing.
Total RWAs fell –8% over the year to €345 billion. At the global banking and investor solutions division, the firm’s trading and investment bank entity, RWAs shrunk €24.6 billion (–17%) to €117.7 billion. These dwarfed RWA cuts of €4.4 billion (–4%) at its international retail banking unit and €2.4 billion (–15%) at the corporate centre. RWAs ticked up €200 million (less than 1%) at the French retail banking division.
Following these pruning efforts, the global banking unit now makes up 34% of total RWAs, down from 38% a year prior.
SocGen’s ratio of Common Equity Tier 1 (CET1) capital to RWAs was 12.7% at end-2019, up from 10.9% a year prior. The RWA purge helped power the improvement, along with strong earnings and the issuance of a scrip dividend earlier in the year.
What is it?
Capital requirements established by the Basel Committee oblige banks to hold a minimum ratio of capital to RWAs. Three binding ratios apply: the CET1; Tier 1; and total capital ratios. CET1 capital refers to the highest-quality capital; namely, shareholders’ equity.
Societe Generale set itself a target CET1 capital ratio of 12% by 2020.
Why it matters
Slimming down its troubled trading and investment banking operations was the cornerstone of SocGen’s restructuring plan. Year-on-year, credit RWAs are down –18% and market RWAs –39% at this unit, helping lower its Pillar 1 total capital requirement to €9.4 billion from €11.4 billion.
The reduced capital consumption has not come at the expense of diminished revenues, however. Divisional revenues were up +7% in Q4 2019 versus the same quarter a year ago, driven higher by improved trading revenues and the performance of Lyxor, its asset management unit.
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SocGen’s CET1 ratio shoots higher as revamp continues
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