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SocGen exec's departure may draw line under legal issues, but questions remain

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SocGen exec's departure may draw line under legal issues, but questions remain

While the unexpected departure of one of Société Générale SA's deputy CEOs may help the French bank draw a line under one of its legal disputes in the U.S., the move also brings uncertainty over his succession and the outcome of other legal tussles, according to analysts.

The lender announced March 14 that Didier Valet — who was in charge of corporate and investment banking and has held several top management positions over his 26 years at SocGen, including CFO was leaving the bank due to a "divergence of approaches regarding the management of a specific legal matter."

French financial daily Les Echos said Valet's departure is linked to a case with U.S. authorities over the alleged rigging of the Euro Interbank Offered Rate and the London Interbank Offered Rate. Analysts at JPMorgan said in a note that the Department of Justice "probe could potentially relate to the period when Didier Valet was CFO."

His departure is "being viewed as a requirement or perhaps even a sacrifice in the context of a Libor settlement," said Gildas Surry, an analyst at Axiom Alternative Investments.

JPMorgan analysts said Valet's resignation could speed up a potential settlement, which "would be positive as the litigation overhang has weighed on price performance for over a year."

SocGen's shares have underperformed the STOXX Europe 600 banks index by 5% over the last year, trailing peers BNP Paribas SA and Crédit Agricole SA which are both performing better than the rest of the sector — as uncertainty over its legal woes has mounted.

'Additional uncertainty'

While a slew of banks, including Deutsche Bank AG and Barclays Plc, have settled with the U.S. over Libor rigging, SocGen has another two legal cases in the country: one related to transactions with the Libyan Investment Authority, and the other over U.S. sanction busting. CEO Frédéric Oudéa said in February that the bank hoped to settle the cases in the following weeks and months.

According to Jefferies' analysts, Valet's departure raises questions over how the other legal suits may be settled.

"The market was expecting the finalization of these litigation cases with a fine but with no management departure, which seems a more radical outcome compared to peers and brings some additional uncertainty on the outcome of the two remaining cases," they said in a note.

JPMorgan analysts questioned whether the bank's existing provisions for the three suits of €2.32 billion was sufficient. The bank raised the provisions by €200 million in the fourth quarter of 2017, and the analysts expect further provisions of €500 million in 2018.

"It is, however, challenging to foresee the outcome of U.S. litigations, and it is not clear whether the resignation of a member of top management implies a lower fine," they wrote.

Well regarded

Valet was well regarded by the financial community and had been considered instrumental in building up SocGen's investment banking business, which is a main plank of the bank's strategy. Analysts said it was not clear how his succession would take place.

"This was quite unexpected, so it's something that hasn't necessarily been prepared," Axiom's Surry said.

"He is someone who is very competent ... so it's a shame for the bank," said Benoît de Broissia, an analyst at Keren Finance in Paris. "He's always given an image of someone who is serious, with a clear vision of SocGen's investment banking business."

The departure should not affect the bank's strategy as it is decided by the management board, but there could be some changes in how teams are run, de Broissia added. Valet's successor will likely be a SocGen executive, and the bank will not take long to replace him, he predicted. Oudéa, who has taken over Valet's responsibilities for the time being, "won't want to wear two hats for a long time," according to de Broissia.

Jefferies' analysts said investors could ask for further management changes if it takes too long to reach settlements and if fines are too high as the bank may find it challenging to pay its €2.20 cash dividend per share and reach the 11.5% target for its common equity Tier 1 ratio, a key measure of a bank's financial strength.