SocGen First-Quarter Net Unexpectedly Declines 14% on Egpt, Debt Charges

Societe Generale (GLE) SA, France’s second- largest bank by market value, said first-quarter profit fell 14 percent, hurt by a charge tied to its own debt and provisions resulting from political turmoil in Egypt.

Societe Generale dropped as much as 4.4 percent in Paris trading, the biggest decline since November, after saying net income declined to 916 million euros ($1.36 billion), missing the 1.06 billion-euro average estimate of 10 analysts surveyed by Bloomberg.

Societe Generale, whose shares trailed those of larger French rival BNP Paribas SA every year since the financial crisis began in 2007, aims to reach 6 billion euros of profit next year, helped by its investment bank and consumer-banking networks in markets from Russia to Egypt. BNP Paribas (BNP) reported net income that beat analysts’ estimates yesterday, helped by the purchase of Fortis units during the financial crisis.

“Societe Generale is suffering from a lack of development through acquisitions and from political problems in North Africa,” said Valerie Cazaban, who helps manage 100 million euros at Stratege Finance in Paris and owns shares in BNP Paribas. “BNP Paribas has an advantage on Societe Generale because it bought Fortis at a good time and at a good price.”

Societe Generale fell 1.57 euros, or 3.4 percent, to 43.96 euros by 10:50 a.m. in Paris, trimming the gain this year to 9 percent. That compares with a 0.7 percent advance in the 48- company Bloomberg Europe Banks and Financial Services Index in 2011.

2012 Goal

Societe Generale’s Chief Executive Officer Frederic Oudea, who took over three years ago after a record loss from unauthorized trading, said today the bank is “on track” to reach its 2012 goals.

“My target fundamentally is to put the house in order,” Oudea said in an interview with Bloomberg Television. “We are one of the few banks in my mind with some capacity to grow in the next two-to-three years.”

Leaving aside the 362 million-euro accounting charge resulting from an improvement in the value of its own debt, Societe Generale’s first-quarter profit rose 10 percent as French consumer-banking and corporate- and investment-banking earnings increased on lower bad-loan provisions.

Oudea, 47, plans to balance earnings from corporate- and investment-banking with higher revenue from consumer lending in countries such as Russia. He became CEO in May 2008, four months after the company announced a 4.9 billion-euro trading loss it blamed on Jerome Kerviel, 34. Oudea added the title of chairman a year later, when Daniel Bouton, now 61, stepped down.

Egypt, Tunisia

Societe Generale, which gained almost 3 million clients in Russia by acquiring control of OAO Rosbank in 2008, said last year it was aiming to add 4 million customers by 2012 by opening at least 500 branches in 41 countries stretching from Senegal to Romania.

Upheaval in parts of Africa dented earnings in the past quarter. Profit from international banking fell 61 percent to 44 million euros as Societe Generale booked about 50 million euros of provisions in Egypt, Tunisia and Ivory Coast.

“In these countries, our banks had to close for a certain period of time,” Oudea said in the interview. Still, Societe Generale “can do good business even if there is still some volatility and of course potentially lower growth, in particular in 2011, than expected at the beginning of the year.”

French consumer-banking profits in the first quarter more than offset that impact, climbing 26 percent to 352 million euros on a 7.7 percent increase in revenue.

Risky Assets

The bank posted a profit of 131 million euros at its insurance and financial-services division, up 87 percent. Earnings at the investment bank rose 9.2 percent to 591 million euros on lower provisions and writedowns from toxic assets.

The bank had 96 million euros of provisions in the quarter from risky assets, including asset-backed securities and debt backed by U.S. bond insurers, down from 214 million euros a year earlier, according to a statement. The risky assets generated 42 million euros of revenue in the first quarter, the company said.

BNP Paribas, along with UBS AG (UBSN) and Credit Suisse Group AG (CSGN), Switzerland’s largest banks, and London-based Barclays Plc, posted lower profits at their investment banks as fixed-income revenue slumped.

Revenue from fixed-income, currencies and commodities at Societe Generale declined 8.5 percent to 713 million euros, while equities revenue climbed 12.5 percent, the bank reported.

Greece Restructuring ‘Premature’

Investment banks may struggle to boost profitability after regulators instructed them to hold more capital in reserve against possible losses following the global financial crisis. Societe Generale said return on equity, a measure of profitability, was 8.8 percent in the first quarter, compared with 11.1 percent a year earlier.

Oudea, in the interview, said the company has no need to raise capital because of its ability to generate profits.

The bank owns 88 percent of Greece’s Geniki Bank (TGEN) SA, which has been unprofitable each year since 2003. Oudea said a debt restructuring of Greece’s sovereign debt would be “absolutely premature.”

Yields on Greek, Irish and Portuguese bonds reached euro- era highs last week amid concern Greece’s debt burden will prove unsustainable even after a bailout by the European Union and International Monetary Fund last year.

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

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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