Societe Generale SA, France’s second-largest bank, posted a bigger-than-expected 42 percent drop in second-quarter profit after taking writedowns on its Russian unit and U.S. asset manager TCW Group.
Net income fell to 433 million euros ($533 million) from 747 million euros a year earlier, the Paris-based bank said by e-mail today. That was short of the 695 million-euro average estimate of nine analysts surveyed by Bloomberg. The bank took a 250 million-euro writedown on its Rosbank division in Russia and a 200 million-euro markdown on Los Angeles-based TCW.
Chief Executive Officer Frederic Oudea is trimming corporate- and investment-banking, or CIB, assets and cutting about 1,600 jobs at the unit, home to Societe Generale’s trading business. The lender, hurt by last year’s liquidity crunch and losses on Greek sovereign debt, joined French rivals BNP Paribas SA and Credit Agricole SA in shrinking balance sheets in most overseas markets and reducing government-debt holdings.
“For us, the priority is to progressively generate capital,” Oudea said in a Bloomberg Television interview today.
Societe Generale, unlike BNP Paribas and Credit Agricole which both operate branches in Italy, has no retail network there. The company is “completely at ease” with financing its Italian and Spanish non-sovereign risks, which stood at 14.2 billion euros and 10.1 billion euros, respectively, at the end of June, Oudea told journalists at a meeting in Paris.
Societe Generale’s combined sovereign exposures to Italy, Spain, Greece, Portugal and Ireland are “insignificant” at about 2.2 billion euros by the end of July, Oudea said.
Societe Generale rose as much as 3.1 percent in Paris and traded 0.5 percent higher at 18.10 euros as of 4:02 p.m. Before today, it had fallen 48 percent in the past 12 months, giving the bank a market value of about 14 billion euros. BNP Paribas, France’s largest lender, has dropped 34 percent in the period.
“Even if their business disposals aren’t materializing, the performance is solid and capital levels are convincing,” said Jacques-Pascal Porta, who helps manage about 500 million euros at Ofi Gestion Privee in Paris.
France’s biggest banks are cutting at least 300 billion euros off their balance sheets to comply with stricter Basel III capital rules, mirroring similar moves by other European lenders such as Deutsche Bank AG, Germany’s biggest.
Societe Generale repeated today that it aims to reach a core capital ratio of between 9 and 9.5 percent, under Basel III, by the end of 2013 without a rights offer.
“I am very confident that we will be in line with our objectives at the end of 2013 with capital generation coming from our earnings,” said Oudea, 49.
Societe Generale is in “no hurry” to dispose of businesses, the CEO said, repeating that the bank plans to sell some assets “to have a cushion.” It will also “potentially reinvest if we have opportunities in business growth,” he said.
The lender’s French unions on July 26 received notice on a possible sale of the company’s U.S. asset manager TCW, without any details on the price or the acquirer, according to a union representative. Oudea today declined to comment “on any specific disposal processes.”
Societe Generale has cut about 14 percent of its CIB staff in France this year after shuffling the unit’s management. The lender joins rivals whose earnings were curbed because of weak markets. Deutsche Bank, Europe’s largest investment bank by revenue, yesterday said that second-quarter pretax profit at its securities unit slid 63 percent to 357 million euros.
“Markets were extremely difficult, it’s normal to see trading revenue down,” Valerie Cazaban, who helps manage 100 million euros at Stratege Finance in Paris and owns no shares in Societe Generale, said before the results were announced.
JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley had combined first-half revenue of $161 billion, down 4.5 percent from 2011 and the lowest since $135 billion four years ago.
Net income at Societe Generale’s CIB unit fell to 131 million euros from 449 million euros a year earlier, compared with the 102 million-euro average estimate of analysts surveyed by Bloomberg. Revenue from fixed income, currencies and commodities declined 5.8 percent, while sales from the equities markets business dropped 24 percent, the bank said.
Societe Generale has accelerated disposals of subprime-era assets including U.S. residential mortgage-backed securities since mid-2011. In the second quarter, it booked 150 million euros in writedowns and provisions from scaling down subprime-era holdings.
Societe Generale’s profit from French consumer-banking networks fell 6.3 percent to 360 million euros. That matched analysts’ estimate of 365 million euros.
At its international retail-banking business, the lender had a 231 million-euro loss compared with a year-earlier profit, hurt by the writedown on Moscow-based Rosbank.
Societe Generale’s international-retail banking earnings also have been burdened by Geniki Bank, its Athens-based unit. Geniki, which has a 2.15 billion-euro loanbook and 2.02 billion euros in deposits, is “under control,” Oudea said. While Societe Generale is on “a trend of reduction” for Geniki risks, the French bank might be “open to all possibilities” about its future, Deputy CEO Bernardo Sanchez Incera said.