beyondbrics

It’s one thing to measure political risk in terms of swings in currencies, stock markets and CDS spreads. It’s another to count the costs in your P&L which is what Societe Generale has had to for its operations in Egypt, Tunisia and the Ivory Coast.

The French bank on Wednesday disclosed, in its first quarter results, €50m provisions for the three countries “undergoing political transition”.  With net income of €916m, the group can take the hit. But nobody wants to lose that much in what are still peripheral markets.

Investors, who had expected considerably higher net profits of €1.06bn, marked the shares down by over 3 per cent, reducing the gain for the past 12 months to 14.8 per cent.

Frederic Oudea, chairman and ceo,  put a brave face on events, saying in a statement: “The Q1 results provide further evidence of the robustness of the group’s businesses and their ability to grow in an uncertain international economic, political and financial enviroment.”

But Oudea clearly didn’t want to report a 14.8 per cent drop in net income – dragged down by a 61.4 per cent drop to €44m in the international retail banking business, which is focused on emerging markets, including Africa, the Middle East and Eastern Europe.

The group ran into difficulties in the global crisis in CEE, like other banks investing in the region. Just as these countries are coming good – with “a sharp improvement” in provisions in Russia and the Czech Republic and “a stabilisation” in Romania – “prudent crisis management” has proved necessary in Egypt, Tunisia, and Ivory Coast.

But Soc Gen remains committed to growing these international operations. with 150,000 new international customers, compared to the first quarter of 2010, loans were up 5.2 per cent and deposits 3 per cent. A bouyant Russia led the way.

The lesson isn’t to avoid political risk-prone countries, but to diversify.

Related reading
European banks in depth, FT
Middle East protests in depth, FT
Barclays in Egypt: $3bn on the line, beyondbrics
El-Erian: pricing in the unknown, beyondbrics
Egypt: the economic ties that bind, beyondbrics