Today, SocGen announced its results, becoming in the process the fourth out of six European banks to make a loss in its corporate and investment banking business in the fourth quarter (the others being Deutsche, Credit Suisse, and UBS).
The collapse in profitability was mirrored at BNP, where profits in the investment bank were down…99%.
BNP Paribas has long prided itself on its corporate and investment banking cost ratio, one of the lowest in the industry, but in the fourth quarter it rose to 95.4%. Costs exceeded income at SocGen in the fourth quarter; for the full year its cost income ratio was 72.6%, up from 59.7% on a year earlier/
Rising costs are leading to hard choices at what were once seen as nice, collegiate places to work with comfortable profit margins.
As the screw turns, politics are intensifying.
This appears to be especially so at SocGen. At the end of last year, it dispensed with Michel Péretié as head of its corporate and investment bank. At the time, the line was that Péretié was simply moving on. In reality, his departure appears to have had more to do with strategy differences. Financial News pointed out that Péretié was attempting to move away from equities and to create a more balanced bank based on one third equities, one third fixed income, and one third financing and advisory. In his wake, equities bankers - and equities derivatives bankers in particular, appear to be in the ascendant.
Hence, following Péretié’s departure, numerous senior fixed income bankers left – including Mike Burton, global head of FX sales.
“The fixed income business at SocGen is basically being assimilated into equity derivatives,” argues one headhunter. “They’ve removed a senior layer of fixed income management and brought it under the control of key equity derivatives lieutenants.”
Questions are also being raised about senior fixed income redundancies at SocGen in Asia, where the bank has just made some senior hires from BNP. "It makes no sense," says one headhunter. "Why buy people out just before bonus time?"
Redundancies and ruthlessness
Like BNP, SocGen has cut its bonus pool by 50%. The financial statement accompanying SocGen’s annual results indicates that stock bonuses across the bank as a whole are down 45% on 2011.
SocGen is also cutting 1,580 corporate and investment banking jobs as part of its cost cutting initiative.
Getting made redundant from anywhere in this market is bad. But if you get made redundant from SocGen, there appears to be a sting in the tail. The bank’s financial statement also indicates that its redundant bankers forego all their stock.Employment lawyers say this is unusual: general practice in the City is to allow redundant staff to keep deferred stock, or negotiate an exit.
Coincidentally, yesterday, SocGen lost a claim for unfair dismissal brought by two traders who were made redundant in 2009 after they complained about unpaid bonuses.
“If you’re 30 and you’ve got kids and want to see them in the evenings, French banks have traditionally been a good place to go,” says one headhunter who works for French banks in London. “They don’t pay well, but your job is more secure and they’re nicer places to be.”
Unfortunately, this may no longer apply.