SocGen Posts Surprise Profit Decline on Russia Writedown

Societe Generale SA, the second-largest French bank by market value, reported a 13 percent decline in first-quarter profit after writing down the value of its Russian unit.

The bank fell as much as 2.3 percent in Paris trading after reporting net income of 315 million euros ($439 million), below the 868 million-euro average estimate of eight analysts Bloomberg News surveyed by phone and e-mail.

Societe Generale, among the biggest foreign banks in Russia, cited “the decline in the ruble” and “growing uncertainty concerning the environment” in the country in taking a 525 million-euro goodwill writedown.

“It’s very disappointing,” said Jerome Forneris, a fund manager at Banque Martin Maurel in Marseille. “They had promised us that it was going to improve, but the opposite is happening.”

The U.S. and European Union have imposed sanctions on individuals and companies after Russia seized Crimea, Ukraine’s mainly Russian-speaking peninsula, and allegedly backed pro-Russian militants who have taken over part of eastern Ukraine. The crisis threatens economic growth across Europe, particularly in countries bordering Russia or dependent on Russian energy, the European Commission said May 5.

The ruble fell more than 8 percent against the euro this year, while the Micex Index of Russian stocks slumped 11 percent.

Russia Risk

Societe Generale slid 0.9 percent to 43.50 euros by 2:34 p.m. in Paris, paring this year’s gains to 3.1 percent. Credit Agricole SA, France’s No. 3 lender by market value, rose as much as 5.9 percent after posting an 85 percent jump in quarterly profit on a reduction in doubtful-loan provisions.

Societe Generale will keep its crossborder funding to the Russian unit, currently 1.2 billion euros, “manageable” in part by financing the business with local deposits, Chief Executive Officer Frederic Oudea said on a call with journalists. The unit has no commitments in Ukraine, he said.

The French bank is seeking “satisfying profitability” in Russia in 2016, Oudea said.

Societe Generale, which had widespread operations in Russia before World War I, re-entered the market after the Soviet Union collapsed. In 2008, Societe Generale bought a majority stake in Moscow-based OAO Rosbank to clinch a spot among the foreign banks with the largest presence in Russia.

Profit Goals

The French bank bought out most of Rosbank’s remaining minority investors in April. Societe Generale had targeted a return on equity, a measure of profitability, of more than 15 percent in Russia by 2015, compared with 12.7 percent last year. Societe Generale said today it will present details of a business plan for Russia next week with double-digit ROE in 2016.

The company’s international banking and financial-services unit swung to a loss of 284 million euros from a profit of 256 million euros in the first quarter because of the goodwill writedown in Russia, Societe Generale’s largest market by clients outside France.

Goodwill represents the amount paid for a company above the fair value of its assets, and includes intangibles such as its brand, customer base and reputation.

Investment Bank

Earnings at Societe Generale’s corporate and investment bank fell 16 percent to 409 million euros in the first quarter. Revenue at the global markets business slumped 7.9 percent, as fixed-income, currencies and commodities revenue tumbled 25 percent in a “challenging market environment for rate activities,” the bank said.

Equities revenue rose about 9 percent to 688 million euros, thanks to “positive market momentum,” it said.

Societe Generale said it completed the acquisition of the remaining 50 percent of derivatives brokerage Newedge Group yesterday from Credit Agricole in exchange for a 5 percent stake in Amundi Group.

Societe Generale’s French consumer-banking earnings rose 21 percent in the first quarter from a year earlier to 323 million euros, the company said. That beat the 309 million-euro average estimate of six analysts.

Societe Generale targets a total return-on-equity, a gauge of profitability, of about 10 percent by the end of 2015 compared with 8.4 percent last year, excluding exceptional gains and charges. The bank will discuss its financial goals in full at an investors day on May 13.

Before it's here, it's on the Bloomberg Terminal.