The lender stirred unpleasant memories of the worst moments of the financial crisis by revealing that it will have to take further provisions on the value of its collateralised debt obligations (CDOs) and credit default swaps (CDS) – structured products that cost banks across the world hundreds of billlions of pounds in 2008.
The bank blamed its €1.4bn provision against CDOs in the fourth quarter on "the contrasted signals coming from the US residential real estate market", echoing the sub-prime meltdown that precipated the crisis. As a result, it has decided to subject its valuations to "a much stricter assessment".
SocGen has also taken a €100m hit on the value of its CDS assets.
The bank also warned that last year's investment banking bonanza may already be over, with revenues shrinking in the three months to December compared with the previous quarter. "Net income at corporate and investment banking is expected to be down, especially in fixed income, reflecting lower investor activity as of November and less favourable market conditions," SocGen said.
However, it still enjoyed "strong performances in corporate and investment banking" and "is in a favourable position to go into 2010".
The writedowns will leave SocGen with "a slight profit in terms of estimated net income" for the quarter, a forecast that pushed the shares down 4pc. Other banks were hit on fears that they may also need to take further writedowns. BNP Paribas fell 1pc and Barclays dropped 1.2pc.
Analysts said SocGen's problems were largely specific to the lender. "We have consistently said that SocGen was the only bank left that still had a significant loss to take in structured credit," Arturo de Frias, analyst at Evolution Securities, said. "They seem to have decided to do this quarter after quarter rather than in one go."
Mr De Frias raised concerns about the writedowns SocGen had taken last month, when it warned of "significant legacy issues".
In October, SocGen raised €4.8bn to pay back €3.4bn of government bailout funds. The excess was used to strengthen its capital position and fund the acquisition of French retail bank Credit du Nord from Dexia.
In January 2008, the bank revealed it had lost nearly €5bn on positions held by Mr Kerviel .
