SocGen Quarterly Net Falls 86% on Debt Charge, Greek Sale

Societe Generale SA, France’s second- largest bank, reported an 86 percent decline in third-quarter profit as losses on asset sales and a charge related to its own debt outweighed an investment-banking rebound.

Net income dropped to 85 million euros ($109 million) from 622 million euros a year earlier, the Paris-based company said in an e-mailed statement today. Earnings at the corporate and investment bank rose fourfold, lifting the bank’s shares by as much as 3.7 percent in Paris trading.

“The underlying performances are satisfying,” said Francois Chaulet, who helps manage 250 million euros at Montsegur Finance in Paris, including Societe Generale shares. “It’s a kickstart on improving profitability” after cutting assets and increasing capital, said Chaulet.

Societe Generale has been eliminating jobs and selling assets as rising capital requirements and Europe’s sovereign- debt crisis squeeze profit. The bank booked a 130 million-euro loss after agreeing to sell its Greek unit last month for 1 million euros, and took a loss of 92 million euros on the sale of Los Angeles-based asset-management unit TCW Group Inc. The bank had losses of 58 million euros from the sale of loans at the corporate and investment bank and 82 million euros on its portfolio of assets left over from the subprime crisis.

The Paris-based bank also booked an accounting charge of 389 million euros tied to the theoretical cost of buying back its own debt as market prices fluctuate. Leaving aside the non- recurring items, profit amounted to 856 million euros.

Capital Goals

Societe Generale lowered risk-weighted assets by 5.4 billion euros in the third quarter and completed its loan- disposal program at the corporate and investment bank, selling 16 billion euros of assets since June 2011.

The company stuck to a goal of reaching a core Tier 1 capital ratio under Basel III standards of 9 percent to 9.5 percent by the end of 2013 by retaining earnings and reducing assets. BNP Paribas SA, France’s largest bank, reached a 9.5 percent Basel III capital ratio at the end of September.

Societe Generale has said a sale of businesses can provide an “additional capital buffer.” The TCW transaction, scheduled to close in the first quarter, will increase Societe Generale’s Basel III ratio by 0.13 percentage points, the bank estimated on Aug. 9. Separately, Qatar National Bank is in talks to buy a majority stake in the French bank’s Egyptian unit, National Societe Generale Bank SAE.

Egypt Approach

The bank is taking an “opportunistic approach” to the Egypt unit and may reach a deal if “the price is good,” said Deputy Chief Executive Officer Severin Cabannes in an interview with Bloomberg Television.

Societe Generale has cut about 1,600 jobs at the corporate and investment bank this year after shuffling the division’s management. Securities firms have posted gains in revenue since European Central Bank President Mario Draghi’s July pledge to do “whatever it takes” to defend the euro sparked a rally in bond markets.

French banks, the biggest foreign holders of private and public debt in the euro-area’s problem economies, are benefiting from the ECB’s moves as the crisis enters its fourth year.

Societe Generale rose 3.2 percent to 25.38 euros by 9:39 a.m. in Paris. The stock is up 47 percent in Paris trading this year, while BNP Paribas gained 33 percent and Credit Agricole SA, France’s No. 3 bank by market value, climbed about 37 percent.

Profit Leaps

Deutsche Bank AG, Europe’s largest bank by assets, posted an increase in third-quarter profit last week as revenue from trading bonds and other products jumped 67 percent. Goldman Sachs Group Inc. said last month its fixed-income, currencies and commodities revenue climbed 28 percent in the quarter from a year earlier. BNP Paribas said capital-markets revenue climbed as fixed-income sales more than doubled to 1.13 billion euros.

Profit at Societe Generale’s corporate and investment bank jumped to 322 million euros in the third quarter from 77 million euros a year earlier, the bank said. That topped the 156 million-euro average estimate of analysts. Revenue from fixed income, currencies and commodities climbed to 678 million euros, higher than analysts’ estimate of 433 million euros.

Cabannes said it’s “difficult to be sure” the improved situation will last and that the markets are likely to remain volatile in the future.

Societe Generale has accelerated disposals of subprime-era assets, including U.S. residential mortgage-backed securities, since mid-2011. The French bank trimmed its subprime-era non- investment-grade assets to 3.2 billion euros as of Oct. 17.

Economy Crawling

Net income at Societe Generale’s French consumer-banking network fell 10 percent to 351 million euros, in line with the analysts’ estimate. While the division’s costs fell 1.2 percent, money set aside for bad loans at the unit rose 28 percent to 216 million euros, Societe Generale said.

“In a French economy which has slowed to a crawl, the French networks posted solid results,” Societe Generale said.

At its international consumer-banking business, profit rose 24 percent to 112 million euros. Societe Generale’s Russian retail-banking unit had a 10 million-euro third-quarter profit after cutting 10 percent of its staff, or about 2,500 jobs, in the past 12 months, it said.

Unlike BNP Paribas and Credit Agricole, Societe Generale doesn’t operate an Italian branch network. French banks held $540 billion in private and public debt in Greece, Ireland, Italy, Portugal and Spain at the end of June, Bank for International Settlements data show.

(Source: Bloomberg)