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Societe Generale earnings q4 2018

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Societe Generale SA headquarters in Paris, France.

Balint Porneczi | Bloomberg | Getty Images

Societe Generale SA headquarters in Paris, France.

Societe Generale posted its full-year net profit of 3.9 billion euros ($4.43 billion) at the end of 2018.

The bank’s full-year performance came in line with the average forecast of 3.85 billion euros. This is a 37 percent increase from its 2017 full-year profits that stood at 2.8 billion euros.

The French lender’s fourth-quarter net profit jumped nine-fold to 624 million.

In comparison, in the last quarter of 2017, the bank saw a net income of 69 million euros.

Here are other key details:

  • Net banking income stood at 5.9 billion euros in the fourth quarter of 2018 compared to 6.3 billion euros a year ago.
  • Net cost of risk stood at 363 million euros in the fourth quarter of 2018 from 469 million euros a year earlier.

Fréderic Oudéa, the Group’s Chief Executive Officer, said in a statement: “We will be even more selective in our capital allocation, prioritizing the Group’s areas of excellence. Moreover, in a more uncertain economic environment, we will continue to work on our operating efficiency with an additional plan to reduce costs in Global Banking & Investor Solutions and we are further prioritizing cost control.”

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Global interest rates could fall to 2016 lows: Medley Global Advisors

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A leading Wall Street firm predicts global interest rates could fall to three year lows this year — to about 1 percent.

According to Medley Global Advisors’ Ben Emons, the scenario is becoming more likely because inflation is very subdued.

“With all this shock that happened in the fourth quarter and energy prices falling quite sharply, the effect on inflation is going to last at least though the second or third quarter,” the firm’s managing director said Thursday on CNBC’s “Futures Now.”

In a recent note, he points out the the divergence between the dollar and global Treasury yields. If the global economy does not see a material recovery, he explained that deflation could become entrenched.

“Global central banks have responded to what the Fed has been communicating to not only switching to a pause, but basically potentially embarking on quantitative easing again, for example, in Japan,” said Emons. “That, too, drives global interest rates back down, which presumably we can revisit those lows that we saw in 2016.”

Emons sees the 10-Year Treasury Note yield falling as low as 2 percent this year. It hit a low of 1.31 percent in July 2016. This week, the yield traded around 2.7 percent.

He contends these lower interest rates will lead to favorable to stock markets gains around the world, including here at home.

“Earnings still look pretty good and is coming in actually stronger than expected,” noted Emons, who believes Wall Street fears over a global growth slowdown is overblown.

Even though Emons is bullish on the U.S. market, it isn’t his top international pick. He favors Brazil and China.

“I do like Brazil, for example, because the pension reform is really taking a momentum step towards real reform, and it would be very positive for the Brazilian economy,” he said. “It’s already reflected in the stock market, but I think it has a lot more to go.”

As for China, he believes the trade war with the U.S. will be resolved and create excitement.

“[It] would actually give the Chinese market a lot of upside for a rally,” Emons said.

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Warren Buffett spun riches out of chocolate, was burned by Kraft Heinz

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Warren Buffett’s bet on Kraft Heinz is looking like an acquisition stumble with an unclear path forward.

Buffett’s Berkshire Hathaway on Saturday turned in a $25.4 billion loss in the fourth quarter, weighed down in part by a $3 billion write-down, largely connected to its investment in the food giant. Last year, Kraft, one of Berkshire’s largest holdings, pulled the conglomerate’s results down with a $2.7 billion loss, compared with the $2.9 billion in earnings it added in 2017.

Berkshire, along with private equity firm 3G Capital helped finance H.J. Heinz Company’s merger with Kraft Foods Group in 2015. But the union has been rocky, underlined this week when ketchup maker delivered earnings and revenue sharply lower than estimates, slashed its dividend by 36 percent and took a $15 billion write-down on two of its biggest brands, Kraft and Oscar Mayer. The news sent Kraft Heinz’s stock down about 30 percent on Friday and slashed the value of Berkshire’s stake in the company by more than $4 billion.

Buffett has wanted to do a large acquisition, but he has said he has viewed such deals as pricey and he has moved cautiously. Lessons from the Kraft Heinz deal and how it has compared to other similar transactions may illustrate why he has moved so slowly in spending Berkshire’s massive cash pile, which had grown to $112 billion by the end of last year. He last year remarked to CNBC it is “very hard” to offer a premium for a packaged food company, noting the industry is more difficult than it was ten years ago.

In the past when Buffett has put his money where Americans’ mouths are, he has seen success. His bet on candy and gum raked in millions. Berkshire helped finance M&M-owner Mars’ acquisition of Wm. Wrigley Jr., the maker of Extra gum and Altoids mints, for $23 billion in 2018. By the time he sold out of the company in 2016, he had earned at least $680 million from the deal and roughly $840 million dividends from its preferred shares in it, according to media reports.

The parallel to draw between the two deals is simple: both offered iconic brands Americans liked to eat.

“These are brands I liked 30-plus years ago, and I like them today. And I think I’ll like them 30 years from now,” Buffett told CNBC’s Becky Quick shortly after the Kraft Heinz deal was announced.

But the paths for both companies since their deals have been diametrically divergent, and as has, thus far, the return on the billionaire’s investment.

The contrast in fortunes can be attributed to many forces. Even as tastes have changed, consumers are more wiling to pay up for their favorite brand of chocolate than they are for cheese. Today’s indulgences are more likely to be small and snackable, like a bag of M&M’s or a Twix candy bar, and they are less likely to include processed foods like an Oscar Meyer bologna sandwich.

Led by the Mars family, the company has decades of experience in running the confectionery empire, which also includes a petcare business. Kraft Heinz is led by 3G Capital, the private equity firm that has proved itself in dealmaking and cost-cutting but not yet in running the day-to-day operations of a food company.

But there is another force at play, which speaks more broadly to the pressures facing the consumer industries at large: Mars is a private company while Kraft Heinz is public. Unlike the confectionery giant, Kraft Heinz has had to battle the changes in the consumer industry under the public pressure of quarterly earnings.

For any company, that spotlight can be harsh; for a food company over the past few years, it has been nearly impossible. Companies from General Mills, Campbell and Kraft Heinz are grappling with vast portfolios of brands that Americans are no longer eating. Sales across food companies are generally stagnant or declining, forcing many of them to take large, expensive bets.

Kraft Heinz used to get a pass from investors, who bought shares expecting it to find growth through dealmaking and cost-cutting. But as dealmaking has slowed and cost-cutting has run dry, its investors are punishing it for finding itself no better than its peers.

Like all major food companies, it is now stuck in the precarious position of battling low growth and rising costs in the public eye. Making any demonstrable change in brand and portfolio to appeal to today’s consumers will likely come at the expense of quarterly earnings, thereby reaping immediate punishment.

Mars, meantime, is entirely owned by the Mars family, who has run its $35 billion business for the long-haul. Without investor scrutiny, Mars made long-term investments in its chocolate business, like spending $100 million on the capacity to make caramel M&Ms. It also made changes for its future, paying $9 billion for animal hospital company VCA as Mars as eyes a firmer hold of the growing pet industry.

The contrast between a company for the long-term rather than short is one with which Buffett is intimately familiar. Buffett, an opponent of quarterly earnings guidance, took a swing at managing for the quarter in this year’s annual letter.

“Charlie and I have seen all sorts of bad corporate behavior, both accounting and operational, induced by the desire of management to meet Wall Street expectations. What starts as an ‘innocent’ fudge in order to not disappoint ‘the Street’ – say, trade-loading at quarter-end, turning a blind eye to rising insurance losses, or drawing down a ‘cookie-jar’ reserve – can become the first step toward full-fledged fraud.”

Indeed, Kraft Heinz revealed earlier this week it was the target of an U.S. Securities and Exchange Commission investigation into its “accounting policies, procedures, and internal controls.” It has said it is implementing certain measures to “mitigate” the risk of making the mistakes in the future.

Details around the nature and remedies surrounding the investigation are vague, and there is no evidence it is anything other than an honest mistake.

“We continue to cooperate fully with the SEC, and at this time the Company does not expect matters subject to the investigation to be material,” a Kraft spokesman said in a statement.

Still, not fully recording costs each quarter is one way companies have, in the past, helped boost their quarterly performance — and it could be the type of behavior Buffett has warned against.

He told investors at a 1995 shareholder meeting, that when investing “the most important thing [is] trying to find a business with a wide and long-lasting moat around it … protecting a terrific economic castle with an honest lord in charge of the castle,” according to a clip found using CNBC’s Warren Buffett Archive.

There was a time when making blue boxes of Kraft Mac & Cheese dinner or hot dogs, promoted with their own iconic touring “Weinermobile,” seemed like the right fortress on which to stake a claim, but that may not be the case any longer.

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Jeff Bezos told employees Amazon is not that scary; he was right

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Amazon CEO Jeff Bezos, founder of space venture Blue Origin and owner of The Washington Post, participates in an event hosted by the Air Force Association September 19, 2018 in National Harbor, Maryland. 

Alex Wong | Getty Images

Amazon CEO Jeff Bezos, founder of space venture Blue Origin and owner of The Washington Post, participates in an event hosted by the Air Force Association September 19, 2018 in National Harbor, Maryland. 

Amazon CEO Jeff Bezos thinks it’s wrong to be so fearful of his company’s outsize presence. He may have a point.

At an internal all-hands staff meeting last March, an employee asked Bezos about the growing fear over Amazon potentially killing competition in many different industries, according to a recording CNBC has heard.

The questioner noted that as the e-commerce giant has expanded into almost every major business category, some of Amazon’s partners and customers have started to express their concerns.

Bezos responded that those concerns are raised “all the time” and often gets exaggerated because it’s a “juicy” media story. He laughed at the fact that some company stocks even dropped on rumors of Amazon getting into a new field, shrugging off those effects as “very short term.”

“In real life, there’s room for lots of winners,” Bezos said, in a recording of the meeting that CNBC has heard. “In fact, the sky does not fall for these companies.”

He appears to be right.

Fears of Amazon taking over the world have reached a fever pitch in recent years. In the fourth quarter of 2017, Amazon was the most mentioned company on earnings calls of S&P 500 companies. But some of Amazon’s primary competitors are finding ways to survive and even thrive against one of the most valuable companies in the world.

Walmart reported strong earnings this week, powered by robust growth in its online business that directly competes with Amazon. On Monday, Amazon’s studio boss, Jennifer Salke, acknowledged the challenges in its film business that saw six straight box office flops. Meanwhile, Microsoft is proving to be a formidable competitor in the cloud industry and Google is narrowing Amazon’s lead in the voice assistant space.

Companies in some of Amazon’s newer businesses — across shipping, healthcare, and groceries — all remain little affected by Amazon’s presence so far.

In fact, of the 65 S&P 500 components that mentioned Amazon during earnings calls in the fourth quarter of 2017, 35 outperformed the broader market in 2018.

“There’s an overestimation of Amazon’s potential to ‘crush’ competitors,” said Charles Hill, a business professor at the University of Washington. “It’s kind of an irrational fear of big business.”

An Amazon spokesperson noted that the company is diverse, and faces lots of competition in each of the businesses it’s in. Even in e-commerce the company’s largest business, “we represent less than 1% of global retail and less than 4% of U.S. retail,” Amazon noted.

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