FEARS that a fresh round of toxic asset writedowns are set to emerge from the banking sector were yesterday fuelled by a profit warning from Societe Generale.
France’s second biggest bank warned on its fourth-quarter profits after taking a further €1.4bn (£1.25bn) hit from risky assets. Following the additional writedown, SocGen said it was now only expecting to report a “slight profit” for the fourth quarter, whereas analysts had been forecasting a net profit of around €960m.
SocGen shares were down 2.86 per cent at €50.19 at the close of trading, making it one of the biggest losers on France’s blue-chip CAC 40 index.
The DJ Stoxx European banking sector index swung between gains and losses throughout the day amidst some concerns that other banks may also announce new writedowns and that a relatively poor performance by SocGen’s investment banking arm pointed to an industrywide downturn.
The profit warning served as a reminder that toxic assets are still a problem for the world’s banks although some analysts said SocGen has been lagging others in facing up to the issue.
SocGen said the impact from risky assets comprised writedowns on collateralised debt obligations (CDOs) linked to residential mortgage-backed securities, as well as changes in the mark-to-market valuation of credit default swaps (CDS).
However, the bank plans to put around €37bn of toxic assets into one single legal entity which could help it reduce future losses from this area.
City A.M. Reporter