SocGen Falls After Russia Loss, Debt Trading Decline

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SocGen CEO Sees `Good Momentum, Good Profitability'

Societe Generale SA fell the most since December in Paris trading after reporting a loss in Russia and declining revenue from trading bonds.

The shares declined as much as 5.3 percent, and were 2.4 percent lower at 43.72 euros by 10:45 a.m. That pared the gain this year to 25 percent.

First-quarter profit rose even as the bank reported a 108 million-euro loss in Russia in the first quarter, while consumer-banking revenue in the country fell by more than half. At its investment bank, Societe Generale saw a jump in costs and a decline in credit and foreign exchange trading, after most of its European peers posted higher revenue.

It was a “mixed set of results -- with notable weakness from Russia and corporate- and investment-bank cost pressure,” Citigroup Inc. analysts led by Kinner Lakhani said in a note to clients.

Net income rose to 868 million euros ($972 million) in the first quarter from 169 million euros a year earlier, driven by revenue from stock trading.

Profit at the global banking and investor solutions unit, headed by Didier Valet, climbed 21 percent from a year ago to 522 million euros. Even so, expenses from its market activities jumped to 1.3 billion euros from 1.01 billion euros a year earlier, bank data show.

Weak Revenue

The loss in Russia compared with a 530 million-euro loss a year earlier, when Societe Generale wrote down goodwill on its activities in the country. Consumer-banking revenue collapsed to 114 million euros from 274 million euros in the previous year, the bank said. Societe Generale has cut about 1,000 jobs in Russia since December.

“Russia has very weak revenues,” said Cyril Meilland, an analyst at Kepler Cheuvreux in Paris who recommends buying the stock. “It will be tough to improve on the revenue side, while provisions are bound to rise. It doesn’t bode well.”

Chief Executive Officer Frederic Oudea in an interview with Bloomberg said there was a “progressive normalization” under way in Russia compared with the end of last year.

Equity derivatives and structured products led the 32.5 percent increase in revenue from equities trading, the bank said. Revenue from rates, credit, foreign exchange and commodities fell 2.8 percent to 584 million euros. Prime services revenue increased 25 percent to 144 million euros.

Societe Generale took full control of derivatives brokerage Newedge last year to tap an increase in electronic trading and clearing. The French bank, like Deutsche Bank AG and Credit Suisse Group AG, is reshaping its market activities to cope with stiffer regulation and record-low interest rates.

Capital Levels

Profit from French consumer banking fell 6.2 percent to 273 million euros from a year earlier. Credit Agricole SA also reported a decline in earnings at its French retail banking unit LCL on Wednesday, hurt by record-low interest rates.

“Things are improving economically,” especially in Europe, Oudea said in the interview. “That might take some time, that might be progressive, but there is a general feeling that things are improving.”

Societe Generale’s common equity Tier 1 ratio, a measure of financial strength, was 10.1 percent at the end of March, stable from three months earlier. The leverage ratio, or equity as a proportion of total assets, slipped to 3.7 percent from 3.8 percent at the end of December.

Oudea attributed the decline to “market effects,” and said he expects to reach the company’s 4 percent target next year.

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