Feb. 18 (Bloomberg) -- Societe Generale SA, France’s third- largest bank, predicted that 2009 will ‘remain challenging” after posting a fourth-quarter profit on French consumer banking.

Net income was 87 million euros ($110 million), compared with a 3.35 billion-euro deficit a year earlier, when the bank booked trading losses on positions amassed by Jerome Kerviel, the Paris-based bank said today. The firm raised its dividend for 2008 by 33 percent to 1.2 euros a share.

“We managed market risks well, especially in the fourth quarter,” Chief Executive Officer Frederic Oudea told journalists in Paris. Still, the economic situation is “very difficult” for 2009, he added.

Societe Generale posted a profit as earnings from consumer lending at home outweighed losses at the international retail banking and asset management units. The bank said the global economic crisis affected “a number of activities,” and led to a 300 million-euro goodwill writedown at its Russian operations.

“The results are positive,” said Jean Sassus, an analyst at Raymond James in Paris. “Looking ahead, the problem is the big increase of credit risks, which is worrying” for 2009 and 2010, he said.

Societe Generale rose 61 cents, or 2.7 percent, to 23.35 euros in Paris trading, after gaining as much as 7.1 percent. The shares have dropped 67 percent in the past year, compared with a 59 percent decline in BNP Paribas SA, France’s largest bank.

BNP, Commerzbank

“We may make selective job cuts in the businesses most affected by the crisis,” Oudea said. Still, total headcount is rising, he said.

The French bank, which employees about 163,000 people worldwide, plans to cut costs in areas such as information technology and travel. The measures are expected to increase operating profit by 400 million euros this year and about 1 billion euros in 2010, the bank said.

Societe Generale outperformed BNP Paribas, which had a loss of about 1.4 billion euros in the fourth quarter as “violent movements” in stock and bond markets battered trading results. Commerzbank AG, Germany’s second-largest lender, reported today a net loss of 809 million euros in the quarter and said it made a “good start” to 2009.

Investment Bank Changes

In the fourth quarter, Societe Generale’s investment-banking unit posted a profit of 56 million euros, compared with a 3.92 billion-euro loss a year earlier. The bank cut bonuses at the division by an average of about 40 percent in 2008, Oudea said. The 45-year-old CEO and Chairman Daniel Bouton, 58, renounced their 2008 bonuses last month.

A year after the Kerviel-related loss, Societe Generale is reorganizing the management of its investment-banking unit, which has been headed by Michel Peretie since October. The bank said today that Christophe Mianne is now in charge of both the equities and fixed-income activities in a plan to bring the two together. Olivier Khayat, who ran the fixed income, currencies and commodities businesses, will be reassigned to another post.

“This project doesn’t rely on job cuts,” Peretie told reporters today. The investment-banking unit increased total staff by 4 percent last year as it invested to reduce risk after the Kerviel affair, Peretie said.

Eastern Europe

Earnings at the French retail unit fell 1.3 percent to 311 million euros. International banking had a 76 million-euro loss, compared with a 202 million-euro profit a year earlier. The loss at the asset management operations widened to 152 million euros from 30 million euros.

Societe Generale shares fell 9.6 percent yesterday to the lowest since October 1998 on concern its operations in eastern Europe will suffer as economies deteriorate.

Societe Generale took control last year of Russia’s Rosbank, which has almost 3 million retail customers, and also owns Komercni Banka AS, the Czech Republic’s third-largest consumer banking network, and BRD-Groupe Societe Generale, Romania’s second-biggest bank.

Societe Generale may seize takeover opportunities in eastern Europe if rivals divest, Deputy Chief Executive Officer Didier Alix said at the press conference.

Currency Risks

“There is no urgency” for acquisitions, Oudea said. “The priority over the next six months is to monitor how the crisis evolves.”

Moody’s Investors Service said yesterday it sees “continuous downward rating pressure” in the region as a result of worsening asset quality. Currencies in central and east Europe have tumbled against the dollar and euro in the past year.

“Everyone is looking at Societe Generale’s currency exposure in eastern Europe and Russia,” said Alain Tchibozo, an analyst at ING Financial Markets in Paris. “The question is, should we expect writedowns on those exposures?”

The French bank had a 92 million-euro currency loss in the Ukraine for its consumer lending activity in the fourth quarter.

Financial institutions worldwide have amassed $1.1 trillion of losses and raised $991 billion of capital since the U.S. subprime mortgage market collapsed, data compiled by Bloomberg show. The U.S., Britain, France and Germany are among nations that injected billions into banks to prevent a wider financial calamity following the collapse of Lehman Brothers Holdings Inc.

The French state pumped 10.5 billion euros into the country’s six largest consumer banks in December, including Societe Generale, by purchasing subordinated debt securities. In a second round of funding this year, the government has offered to inject the same amount, either through buying preferred shares or debt. Societe Generale said last month it will receive 1.7 billion euros in the second round of aid.

Societe Generale’s Tier 1 capital ratio, a measure of financial strength, was at 8.8 percent at the end of December.

The bank earned 2.01 billion euros in 2008, compared with 947 million euros a year earlier. It booked a 4.9 billion-euro trading loss in the fourth quarter of 2007 that it blamed on unauthorized bets by the 32-year-old Kerviel.

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

Last Updated: February 18, 2009 11:56 EST