SocGen Profit More Than Doubles on Investment BankFabio Benedetti-Valentini
Societe Generale SA, France’s second-largest bank, said second-quarter profit more than doubled, beating analysts’ estimates, helped by a surge in corporate and investment-banking revenue.
Societe Generale rose as much as 5.9 percent in Paris trading after saying net income rose to 955 million euros ($1.27 billion), exceeding the 668 million-euro average forecast of six analysts surveyed by Bloomberg. Revenue at the corporate- and investment-banking unit rose 38 percent from the previous year.
Societe Generale, led by Chief Executive Officer Frederic Oudea, is selling assets and has cut hundreds of jobs in investment banking to comply with stricter capital rules designed to ensure the financial crisis of 2008 is not repeated. In May, it announced 900 million euros of cost reductions through 2015 to restore profitability.
“What we are doing in terms of profitability and capital ratios is really going in the right direction at a quick pace,” Oudea said in a Bloomberg Television interview after the earnings were published. The bank’s core Tier 1 capital ratio will be “close to” 10 percent by year’s end and a rights issue is “not at all” needed, he said.
Societe Generale rose 5.6 percent to 31.91 euros by 9:22 a.m., bringing this year’s gains to 13 percent for a market value of about 25.5 billion euros. The Bloomberg Europe Banks & Financial Services Index rose 9.4 percent in the period. BNP Paribas SA, France’s largest bank, which beat analysts’ expectations yesterday with a second-quarter profit of 1.76 billion euros, rose 16 percent this year.
Societe Generale said its leverage ratio, or common equity as a proportion of total assets, will exceed 3 percent by the end of the year, the minimum level set by global regulators for the start of 2018, under the current understanding of Basel committee rules. It didn’t provide a figure for the ratio should the calculations be enhanced as many analysts predict.
The core equity Tier 1 ratio under Basel III, another key measure of banks’ financial strength that is based on risk-weighting of assets, was 9.4 percent at the end of June, a gain of 73 basis points, or 0.73 percentage point, from the end of March, Societe Generale said. The ratio will increase to more than 9.5 percent by year-end, it said.
Regulators are questioning the risk weightings banks apply to their assets, which are typically set by the lenders’ own models, and calling for inclusion of the more simplified measure of leverage that ignores risk.
BNP, which is planning to expand in markets such as Germany and the Asia-Pacific region, had a leverage ratio of 3.4 percent at the end of June, based on core Tier 1 capital.
Net income at Societe Generale’s corporate- and investment-bank surged to 374 million euros from 131 million euros in the second quarter of last year, beating the 354 million-euro average estimate of five analysts. Global-markets revenue rose 27 percent to 1.2 billion euros in the period.
Societe Generale’s equities-trading business benefited from “strong revenues on flow equity derivatives” in Asia and from “sustained commercial activity on structured products,” it said in a presentation.
Trading in fixed-income, currencies and commodities had seen “growing demand from retail and institutional clients on structured products,” the bank said.
JPMorgan Chase & Co., Goldman Sachs Group Inc., Citigroup Inc., Bank of America Corp. and Morgan Stanley reported a cumulative 24 percent gain in revenue at their investment banks from the year-earlier quarter, excluding own debt valuations, according to data compiled by Bloomberg Industries.
Societe Generale had 84 million euros in second-quarter net income from its private banking and investment-management services unit, compared with a 129 million-euro loss in the previous year, when it booked a 200 million-euro markdown on a U.S. asset-management unit.
France’s three largest banks, which also include Credit Agricole SA, last year shrank risk-weighted assets by a combined 128 billion euros and cut thousands of investment-banking jobs to comply with stricter international capital and liquidity requirements.
Now French lenders are seeking to counter the impact of the European economic slump. President Francois Hollande’s government is prodding banks to lend more to help France emerge from a recession, while cutting them some slack on other fronts. French banks were spared a split of lucrative investment-banking activities from other operations as lawmakers passed a bill last month to segregate proprietary trading, the first such move in Europe.
Net income at Societe Generale’s French retail banking unit fell 11 percent to 319 million euros in the second quarter, it said. That surpassed the 301 million-euro average estimate of five analysts. Revenue rose 1.6 percent to 2.07 billion euros while provisions for doubtful loans were at 274 million euros, a 29 percent increase from a year ago, it said.
Societe Generale’s second-quarter net income from Russia was 10 million million euros, rebounding from a year-earlier loss of 271 million euros caused by a writedown at its Moscow-based unit OAO Rosbank, the bank said. Societe Generale serves about 5 million Russian clients, its second-biggest market after France, and is among a declining number of Western banks keeping a presence in Russia after rivals such as Barclays Plc and HSBC Holdings Plc left.
In June, Societe Generale pledged to keep growing its Russian business as it sought to move beyond the May arrest of Rosbank’s former head on bribery charges. It said in June that it aims to achieve return on equity of more than 15 percent in Russia by 2015.
Societe Generale’s corporate center, which includes the group’s property portfolio, its banking and industrial equity holdings and treasury functions, had a net loss of 78 million euros compared with a year-earlier 138 million-euro profit, the bank said. The division booked 100 million euros in litigation provisions, it said.