SocGen Fourth-Quarter Net Drops 89% on Investment Bank Loss

Societe Generale SA (GLE), France’s second-largest bank, said fourth-quarter profit fell 89 percent as the investment bank posted its first loss in two years.

Net income declined to 100 million euros ($130 million) from 874 million euros a year earlier, the Paris-based bank said in a statement today. That missed the 317 million-euro average estimate of 14 analysts surveyed by Bloomberg.

Societe Generale’s corporate and investment bank had a 482 million-euro loss as Europe’s sovereign-debt crisis curbed client trading and the bank sold and wrote down troubled assets. BNP Paribas SA (BNP), the biggest French bank, reported yesterday that pretax profit at its investment-banking unit plunged 99 percent.

“These results bear the burden of the crisis,” said Christophe Nijdam, an analyst at AlphaValue in Paris who has an “add” rating on Societe Generale. For both companies, consumer banking “saved the day, while CIB is the stinker,” he said.

Like BNP, Societe Generale said it reached a 9 percent core capital ratio at the end of 2011, six months before the European Banking Authority’s deadline. Earnings from French consumer banking amounted to 302 million euros in the quarter, unchanged from a year earlier and missing analysts’ estimates. Profit at the international retail unit fell 28 percent to 75 million euros, missing analysts’ estimates for 142 million euros.

ECB Lending

Societe Generale rose 17.5 cents, or 0.8 percent, to 22.56 euros in Paris trading, reversing an early decline of as much as 5.1 percent. The stock has advanced 31 percent this year, outpacing the 18 percent gain in BNP Paribas and the 12 percent climb in Credit Agricole SA, France’s No. 3 bank by market value.

Societe Generale reiterated that it doesn’t plan to pay a dividend for 2011 as it accumulates capital.

European financial stocks rebounded in the first six weeks of the year after the European Central Bank provided 489 billion euros to lenders through a three-year refinancing operation in December.

“The beginning of the year is better than expected, thanks in particular to the decision of the central bank,” said Societe Generale Chief Executive Officer Frederic Oudea in an interview with Bloomberg Television. “There is more comfort overall in the system.”

Societe Generale hasn’t decided whether to tap the ECB’s next round of three-year funding at the end of this month, Oudea said.

‘Historically Low’

Societe Generale, which is cutting about 14 percent of its corporate and investment-banking workforce in France after shuffling the unit’s management, follows competitors including Deutsche Bank AG of Germany and UBS AG of Switzerland in reporting a loss at the division in the fourth quarter. The French bank said “uncertainty, investor risk aversion and the liquidity crisis” drove client-related activity to “historically low levels” at the end of 2011.

The company had 605 million euros in writedowns and provisions in the quarter related to revaluing its so-called legacy assets, a portfolio of holdings left over from the U.S. subprime crisis. It also wrote down its Greek sovereign debt holdings by an additional 162 million euros in the period, bringing provisioning on those bonds to 75 percent. Those costs were counterbalanced by a 700 million-euro gain tied to a decline in the value of its own debt.

Own-Debt Gains

Societe Generale over the past two years accumulated about 1.6 billion euros in gains on its own debt, according to data on its website. These gains may reverse, weighing on future earnings, Chief Financial Officer Bertrand Badre told reporters at a press conference today, without giving a timeframe.

French banks have been embroiled in Europe’s debt crisis because of their $620 billion in holdings of private and public debt in Greece, Portugal, Ireland, Italy and Spain, according to data from the Bank for International Settlements.

Societe Generale, which had smaller Greek sovereign-bond holdings than BNP Paribas, had 890 million euros in gross writedowns on the country’s government debt last year. Societe Generale also had 348 million euros of net losses last year from Geniki Bank SA, its Athens-based branch network.

More than two years after Greece’s budget woes spawned Europe’s sovereign-debt crisis, the region’s leaders are still struggling to bridge divisions over a rescue of the debt-ridden country. As the clock ticked toward a possible default next month, euro-area finance ministers extracted concessions from political leaders in Athens intended to pave the way for the endorsement of a 130 billion-euro aid package next week.

‘Fragile Situation’

European officials may be ready to make a final decision on aid on Feb. 20, Luxembourg Prime Minister Jean-Claude Juncker said in a statement after leading a conference call of finance chiefs late yesterday.

“We’re still in a fragile situation,” said Oudea, 48. “If something unexpected or disorganized takes place in Greece, I think there will be some contingent effects on other countries.”

Societe Generale, BNP Paribas and Credit Agricole in September began trimming about 300 billion euros in assets to comply with stricter capital rules after their stocks plunged and U.S. money-market funds became reluctant to lend to them, reducing their refinancing options in dollars.

‘Legacy’ Assets

Societe Generale accelerated the reduction of its subprime- era legacy assets, which declined from 33 billion euros at the end of 2010 to about 17 billion euros at the end of last year, the company said today. In the fourth quarter, the bank booked 524 million euros of revenue writedowns related mostly to monoline exposure, unhedged collaterized debt obligations and losses on exotic credit derivatives, it said. The subprime- related assets also led to 81 million euros in fourth-quarter provisions, about half for securities tied to U.S. residential mortgages.

Within the legacy-asset pool, non-investment grade assets amounted to 4.9 billion euros at the end of December, including 2.9 billion euros in U.S. residential mortgage-backed securities and CDOs of U.S. RMBS, the bank said.

Separately, Societe Generale last year sold 6 billion euros of corporate-loan portolios at an average discount of about 2 percent, the bank said. The company is seeking to sell more corporate-banking loan portfolios this year with discounts below 5 percent, Deputy CEO Severin Cabannes said on the sidelines of today’s press meeting. Cabannes declined to give an amount or to identify which loan books are up for sale.

Lower Revenue

Reducing corporate lending will dent the corporate and investment bank’s annual revenue by 500 million euros to 750 million euros, Cabannes said. As a result of the corporate- financing reductions, the division’s revenue will be “structurally” below the 2 billion-euro quarterly sales goal Societe Generale had before it announced the asset cuts in September, Cabannes said.

Societe Generale last year set off plans to cut its risk- weighted assets by as much as 80 billion euros, about half by scaling back the corporate and investment bank and half from business disposals. Oudea said today that Societe Generale still plans to free up 4 billion euros in capital by the end of 2013 by selling businesses.

“There are processes which are ongoing,” Oudea said in today’s interview, declining to identify any businesses the bank may shed. “It is going to take some time,” the CEO said, adding that a return of confidence in the euro-zone may help speed up Societe Generale’s disposals plans.

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; Edward Evans at eevans3@bloomberg.net

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