New fears over bank losses as SocGen takes surprise €1.4bn hit

French bank Société Générale yesterday showed that after-shocks from the financial crisis are still shaking the banking industry when it issued a shock profits warning.

The bank – France's second biggest – said its fourth-quarter profits would be hit by taking a further €1.4bn (£1.2bn) hit from risky loans.

It means that SocGen will only be able to report a "slight" profit for the final three months of the year when analysts had pencilled in earnings of nearly €1bn.

The warning threatens to cast a pall over the forthcoming banking reporting season, which had promised better times, serving as a reminder that toxic assets are still biting at the balance sheets of banks.

However, some analysts cautioned against reading too much into SocGen's warning, pointing out that it had been "slower" to face up to the issue than rivals.

Arturo de Frias, from Evolution Securities, said: "We have consistently said that SocGen was the only bank left that still had a significant loss to take in structured credit."

SocGen said the hit to its profits will come from writedowns on the value of collateralised debt obligations (CDOs) linked to residential mortgage-backed securities, as well as from changes in the valuation of credit default swaps, a type of derivative.

These so-called "toxic financial instruments" were a major cause of the financial contagion that spread around the world as default rates on US sub-prime mortgages started to rise sharply.

Corporate and investment banking revenues also eased, particularly in fixed income, owing to declining investor activity. "I think this will be a characteristic for numerous competitors," SocGen's chief financial officer, Didier Valet, warned.

Last month the European Central Bank increased its estimate of writedowns from banks in the eurozone. The ECB said it expected that total eurozone bank writedowns in the period 2007-2010 would come in at €553bn euros. That is an increase from June's estimate of €488bn, with €187bn of writedowns still to be made, down from €214bn in June.

SocGen had been recovering from the €4.9 billion trading loss it announced in January 2008, for which it blamed rogue trader Jerome Kerviel.