Aug. 5 (Bloomberg) -- Societe Generale SA, France's second- largest bank, said profit fell 63 percent in the second quarter, less than analysts estimated, on writedowns linked to the subprime contagion.

Societe Generale rose as much as 4.5 percent in Paris trading after reporting that net income declined to 644 million euros ($1 billion), above the 550 million-euro median estimate of 13 analysts surveyed by Bloomberg.

Chief Executive Officer Frederic Oudea, grappling with the credit crisis six months after announcing a record 4.9 billion- euro trading loss from unauthorized bets by Jerome Kerviel, said the bank will take advantage of its ``solid'' capital position, ``despite an environment that is likely to remain difficult.'' The bank reported 575 million euros of markdowns on subprime-infected debt, less than half the level of the first quarter.

``The pace of writedowns slowed down,'' said Pascal Decque, a Paris-based analyst at Natixis Securities who has an ``add'' rating on Societe Generale. ``It's rather a relief.''

Societe Generale rose 2.39 euros, or 4 percent, to 61.89 euros by 9:43 a.m. The shares have fallen 33 percent this year in Paris trading, cutting the bank's market value to 36.5 billion euros. BNP Paribas SA, France's largest bank, dropped 20 percent, and Credit Agricole SA, the third-biggest by market value, slumped 33 percent in the period.

New Securities Chief

Paris-based BNP Paribas, which helped set off the global credit seizure almost a year ago by temporarily freezing three funds invested in subprime debt, may report tomorrow that second- quarter profit fell 33 percent to 1.52 billion euros on writedowns and loan provisions, according to analysts' estimates.

In May, Societe Generale hired Michel Peretie, the former European head of Bear Stearns International Trading, to replace Jean-Pierre Mustier as head of the investment bank. Oudea, 45, took over as CEO that same month from Daniel Bouton, 58, who stayed as chairman. The bank, fined 4 million euros in July by France's Banking Commission because of ``serious shortcomings'' in internal controls in the Kerviel affair, plans to invest at least 100 million euros over two years to enhance risk procedures.

The 186 million-euro loss at the corporate and investment banking division was smaller than the 264 million-euro estimate of analysts in the Bloomberg survey. Writedowns at the division declined from about 1.2 billion euros in the first quarter.

Assets at Risk

The investment bank said it still had a net 1.9 billion euros of residential mortgage-backed securities and 1.5 billion euros of commercial mortgage bonds at risk at the end of June. In addition, its net risk from debt backed by bond insurers amounted to 600 million euros, after it already wrote down 1.2 billion euros. The unit had a net 2.78 billion euros of super-senior subprime collateralized debt obligations.

Merrill Lynch & Co. announced the sale last week of $30.6 billion of debt, including CDOs, for about a fifth of their original price.

Societe Generale reported a 3.35 billion-euro loss in the fourth quarter, forcing the company to raise 5.5 billion euros in a March rights offer to replenish capital depleted by the trading scandal and writedowns.

Societe Generale's tier 1 capital ratio, a measure of financial strength, rose to 8.2 percent on June 30 from 8 percent at the end of March, based on Basel II accounting standards, the bank said.

Fund Management

Societe Generale's total writedowns from the subprime collapse have amounted to about 4.9 billion euros, company reports show. Banks and financial companies worldwide have posted about $482 billion of credit losses and markdowns since the start of last year, mostly tied to the worst U.S. housing market since the Great Depression, data compiled by Bloomberg show.

Profit at the asset-management division dropped 52 percent in the second quarter to 138 million euros, hurt by a falling stock markets and an outflow of funds. Assets under management stood at 381 billion euros at the end of June, down 18 percent from a year earlier. These results exclude Lyxor Asset Management, which had 71.6 billion euros under management on June 30, the bank said.

Earnings from consumer banking in France fell 11 percent to 328 million euros, weighed down by ``the ongoing crisis in financial markets, the slowdown in economic growth and the higher remuneration of regulated savings,'' the company said. Revenue at the French retail operations will probably rise between 1 percent and 2 percent in 2008, Societe Generale said.

International Profit Rises

Profit from the international retail business jumped 42 percent to 238 million euros, buoyed by countries including the Czech Republic, Russia and Romania. Societe Generale in February became the majority shareholder of OAO Rosbank, which has almost 3 million individual customers in Russia.

The bank wrote down its own debt and credit-default swaps by about 650 million euros in the quarter, partly reversing 1.27 billion euros of gains booked in the first three months of 2008.

Societe Generale blames Kerviel for amassing 50 billion euros in positions in European stock index futures backed by fake hedges and false documents. The French bank unwound the positions during three days starting on Jan. 21 after uncovering the extent of Kerviel's trades over the previous weekend.

Kerviel, 31, who has admitted to trading without permission and faking documents, is under investigation for breach of trust and hacking into the bank's computers to execute and hide trades. Eric Dupond-Moretti, a lawyer for Kerviel, said yesterday that the former trader's managers were aware of his activities and only assigned blame when the positions soured.

Separately, prosecutors placed Kerviel's 24-year-old assistant Thomas Mougard under formal investigation on Aug. 1 for ``complicity to fraudulently enter data into a computer system,'' Isabelle Montagne, a spokeswoman for the Paris prosecutors' office, said in an interview yesterday.

Mougard has denied wrongdoing, according to a July court document. ``These charges are totally unjustified,'' his lawyer Frederique Baulieu said in a telephone interview yesterday.

To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fbenedettiva@bloomberg.net.

Last Updated: August 5, 2008 03:47 EDT