May 7 (Bloomberg) -- Societe Generale SA, France’s third- largest bank, reported an unexpected first-quarter loss on writedowns linked to U.S. bond insurers and higher provisions for risky loans.

Societe Generale fell 9.8 percent in Paris trading after reporting a net loss of 278 million euros ($370 million), missing analysts’ estimates for a 332 million-euro profit.

The French bank, which named Chief Executive Officer Frederic Oudea chairman yesterday, reported 1.5 billion euros of markdowns and a doubling in loan-loss provisions amid the worst financial crisis since the Second World War. The bank’s counterparty credit ratings were cut by Standard & Poor’s, which cited the risk of further losses on its “large exposure to structured credit investments.”

“The horizon remains uncertain, the cost of risk had a very fast and brutal increase,” Oudea told journalists today in Paris. “In the second and third quarters we might still have a relatively significant cost of risk.”

The stock fell 4.29 euros to 39.48 euros in Paris, giving Societe Generale a market value of 22.9 billion euros. The bank rose 9.7 percent so far this year, trailing BNP Paribas SA, which climbed 49 percent, and Credit Agricole SA, which gained 42 percent.

Bond Insurers

BNP Paribas, France’s largest bank, posted earnings yesterday that beat estimates as a rebound at the investment bank cushioned a surge in bad loans.

“SocGen is lagging behind,” said Mamoun Tazi, a London- based analyst at MF Global Securities Ltd. who today downgraded the stock to “neutral” from “buy.” “At risk management, they are not as good as BNP,” he said.

The investment bank had a first-quarter loss of 414 million euros, compared with a 141 million-euro profit a year earlier. Markdowns included 866 million euros on debt backed by bond insurers, 364 million euros on holdings of exotic credit derivatives, 166 million euros on asset-backed securities, and 116 million euros on collateralized debt obligations.

While the first quarter was favorable for financing and fixed income, declining stock markets weighed on the equities business, the company said. The situation remained difficult for “high-risk exposures” tied to the U.S. residential and commercial real-estate markets, Societe Generale said.

‘Acute Tensions’

S&P lowered the bank’s long-term counterparty credit rating one step to A+ from AA-, and its short-term rating to A-1 from A-1+. The possibility of further markdowns and slumping economies mean the likelihood profit this year will match last year’s level is “remote,” S&P said in a statement today. SocGen had net income of 2 billion euros in 2008.

SocGen has reduced “front office” staff at the investment bank by between 300 to 400 jobs, Michel Peretie, who runs the investment bank, said at the press meeting.

BNP Paribas, Credit Suisse Group AG of Zurich and Frankfurt-based Deutsche Bank AG announced first-quarter results that beat analysts’ forecasts, buoyed by a thaw in credit markets that spurred debt sales.

“Acute tensions remain in the financial markets,” Societe Generale said in the statement. “The effects of the various government stimulus plans should help mitigate the consequences of the crisis in 2009 and allow a gradual resumption of growth, albeit at a very moderate rate.”

Board Appointments

The world’s biggest financial companies have booked more than $1.37 trillion in writedowns and credit-related losses since the beginning of the U.S. subprime mortgage crisis in 2007, forcing them to raise $1.12 trillion euros in capital from government and investors, according to Bloomberg data.

Societe Generale raised 5.5 billion euros from investors last year to replenish reserves following a record trading loss in January of last year, which the bank blamed on former employee Jerome Kerviel.

Daniel Bouton, 59, announced his resignation as chairman last week after complaining of “repeated attacks” following the 4.9 billion-euro trading loss. Bouton handed the chief executive role to Oudea, 45, a year ago.

Societe Generale yesterday also appointed board member Anthony Wyand, a former executive director of U.K. insurer Aviva Plc, to the position of vice-chairman.

“Tony will help me to make the board function,” Oudea said today. “In the matter of governance,” Wyand will help “by keeping an independent and strong eye on the executive direction, which I embody,” Oudea said.

State Aid

The company said today it agreed to issue preferred shares to the government to raise 1.7 billion euros in a second round of state aid. The bank bolstered funds last year by selling 1.7 billion-euros of subordinated debt to the government.

The plan to sell the preferred shares needs shareholder approval at the May 19 annual meeting. The sale will probably give the state a stake of about 7 percent to 8 percent, without voting rights, Oudea said.

The bank’s Tier 1 capital ratio, a key indicator of financial health, was 9.2 percent at the end of March, when the second round of government assistance is included.

Earnings at Societe Generale’s French consumer banking network dropped 29 percent to 216 million euros in the quarter. Profit from international retail banking slumped 40 percent to 118 million euros, hurt by a “significant” increase of loan- loss provisions in Russia.

“We are going to reduce headcount at Rosbank and its units by 10 percent,” Deputy CEO Severin Cabannes said. Societe Generale is seeking to “accelerate” cost savings in Russia and will close some branches there, he said.

The financial services division, which includes consumer credit, equipment finance, leasing and insurance, reported an 80 percent decline in earnings to 31 million euros as companies and consumers curbed borrowing.

The asset management, private banking and securities services division earned 18 million euros, compared with a 28 million-euro loss. The bank agreed in January to combine its asset management operations with those of Credit Agricole, handing 70 percent of the combined entity to its partner and keeping 30 percent.

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

Last Updated: May 7, 2009 12:22 EDT