SocGen Profit Beats Estimates on French Consumer BankingFabio Benedetti-Valentini
Societe Generale SA, France’s second-largest bank, more than doubled a dividend payout to shareholders as fourth-quarter profit beat analysts’ estimates, helped by earnings at consumer banking units. The shares rose the most in more than six months.
Net income was 322 million euros ($439 million), compared with a loss of 471 million euros a year earlier, when Societe Generale wrote down a stake in a derivatives broker, the Paris-based company said today. The profit surpassed the 163 million-euro average estimate of nine analysts surveyed by Bloomberg.
Societe Generale said it will pay investors a dividend of 1 euro a share from last year’s earnings, up from 45 cents the previous year and beating analysts’ estimate of 78 cents. The bank will target a dividend payout of 40 percent of earnings for 2014, compared with 27 percent in 2013, it said.
“They are in a favorable position to grow and to reward shareholders,” said Alex Koagne, a Paris-based analyst at Natixis SA, who has a buy rating on the stock. “The dividend is really good news, and the revenue in the French retail banking unit behaved well.”
Europe’s economy is emerging from a record-long recession, boosting Societe Generale’s earnings from consumer banking. The lender’s revenue rose in France and Russia, helped by an increase in deposits, and achieved more a third of its 900 million-euro annual cost cuts planned by 2015.
The bank’s shares climbed as much as 6.1 percent in Paris trading, the biggest advance since Aug. 1. They rose 5.3 percent to 46.59 euros by 1:47 p.m., extending gains over the past 12 months to 43 percent and valuing the company at 37.2 billion euros. Over the same period, BNP Paribas SA, France’s largest bank, increased 34 percent and the Bloomberg Europe Banks & Financial Services Index climbed 14 percent.
Societe Generale’s full-year net income almost tripled to 2.18 billion euros.
The earnings show Societe Generale’s “robustness” and the bank is “in a position, in 2014 and beyond, to seize growth opportunities,” Chief Executive Officer Frederic Oudea, 50, said in the statement.
The company said it fully repaid three-year loans from the European Central Bank known as Longer-Term Refinancing Operations.
“We have done it in a regular way” during 2013, Chief Financial Officer Philippe Heim told journalists at a press conference, declining to provide the amounts originally borrowed. Societe Generale reiterated that it exceeds the 100 percent Basel III 30-day liquidity ratio designed to force banks to hold enough easy-to-sell assets to resist a credit squeeze.
Consumer-banking earnings rose 11 percent in the fourth quarter from a year earlier, Societe Generale said in the statement. Net income at the French consumer-banking unit increased to 281 million euros from 254 million euros. In Russia, the company’s largest market by clients outside of France, consumer-banking profit climbed to 69 million euros from 61 million euros in the fourth quarter of 2012.
Societe Generale’s operations in emerging markets such as Russia and Central Europe carry “low” risk, Deputy CEO Severin Cabannes said in an interview with Bloomberg Television. Market volatility since the Federal Reserve’s tapering “has been well managed and our situation is rather good,” he said.
The corporate and investment banking unit had a 29 million-euro loss compared with a 245 million-euro profit a year earlier. Earnings were hit by a 446 million-euro antitrust fine from the European Union, the company said.
In December, the European Commission, the EU’s executive arm, fined six companies a record 1.7 billion euros for allegedly rigging interest rates. Societe Generale’s fine was the second-largest after Deutsche Bank AG’s 725 million euros. The bank has blamed a single ex-trader it didn’t identify for attempting to rig rates between March 2006 and May 2008.
Deutsche Bank, Germany’s largest bank, posted a fourth-quarter loss on legal costs and accounting charges. Credit Suisse Group AG, the second-biggest Swiss bank, had a fourth-quarter profit that missed analysts’ estimates after setting aside 514 million Swiss francs ($572 million) for U.S. tax and mortgage litigation.
Societe Generale reported the Euribor fine as an expense. Provisions for litigation remained at 700 million euros at the end of the year from three months earlier, it said in the statement.
The core Tier 1 capital ratio under Basel III rules rose to 10 percent at year-end from 9.9 percent in September, it said.
Revenue at Societe Generale’s global-markets business was 1.04 billion euros in the fourth quarter, rising from 977 million euros a year earlier, it said. Sales from fixed-income, currencies and commodities trading fell 39 percent in the quarter while equities trading revenue rose 93 percent to 646 million euros.
“We have capacities to win market share in fixed income,” Cabannes told reporters. Last year Societe Generale hired fixed-income front-office staff and will keep hiring this year, Cabannes said. “We will create a few dozen new jobs in various locations and not only in the U.S.”
The five biggest U.S. investment banks saw their total revenue from trading fixed income, currencies and commodities, a mainstay of their business, drop 4.2 percent in the fourth quarter to $10.2 billion, data compiled by Bloomberg Industries show. At Deutsche Bank, sales from investment banking and trading fell 27 percent, led by a 31 percent drop in debt-trading income, the Frankfurt-based company said last month.
Societe Generale, which plans to outline its financial goals at an investor meeting in May, has said it will reinforce its fixed-income activities by gaining full control of broker Newedge Group.
Societe Generale and Credit Agricole SA, France’s third-largest bank by market value, said in November they’re in talks to swap stakes in Newedge and asset manager Amundi Group. Credit Agricole would increase its stake in Amundi to 80 percent from 75 percent, while Societe Generale would gain ownership of Newedge.
Societe Generale expects to close the Newedge deal probably during the second quarter, Cabannes told journalists.
Societe Generale confirmed it targets a total return-on-equity, a measure of profitability, of about 10 percent by the end of 2015 compared with 8.4 percent last year, excluding exceptional gains and charges.