SocGen profits fall 20% but beat expectations

Fri, May 4, 2012, 01:00

SOCIÉTÉ GÉNÉRALE’S first-quarter profits dropped by a fifth but beat market expectations as France’s second-largest bank by assets performed stronger than expected in fixed-income trading.

The bank said its net income in the first three months fell 20 per cent to €732 million, compared with the same period a year before, hit by a revaluation of its own debt and losses from the sale of a corporate loan portfolio.

The results beat analysts’ forecasts, thanks to higher profits in the insurance and international retail banking operations, and a less-than-feared reduction in investment banking profit. Net income in the unit, where SocGen is cutting 1,580 jobs and retrenching from several business areas, sank by a quarter to €479 million.

Its investment bank recovered from a loss in the fourth quarter thanks to a 39 per cent year-on-year surge in fixed-income sales and trading – an area where markets were boosted by the long-term liquidity operation of the ECB late last year and in January.

Although investors praised the performance of SocGen’s underlying operations in the quarter and the jump in fixed-income revenue, some cast doubt on the sustainability of these trends in a slowing European economy.

“We’re going to want to see confirmation this is sustainable,” said Marco Bruzzo, head of fund manager Mirabaud Gestion AM

SocGen said it had bolstered its core tier one capital ratio under Basel 2.5 rules – a key measure of relative balance sheet strength – by another 0.4 percentage points on the year-end to 9.4 per cent at the end of March. Frédéric Oudéa, chairman and chief executive, said: “We maintain the priority given to rigorous risk management, controlling operating expenses, reducing our liquidity needs and strengthening our capital.”

SocGen and its larger French rival BNP Paribas last year began to shed assets and bolster their equity capital base in a move to ease funding constraints and comply with stricter European regulatory capital rules.

Eleni Papoula, analyst at Berenberg Bank, wrote in a note to clients: “Capital has been a big concern for the French banks so higher capital ratios at least should be positively received.” – (Copyright The Financial Times Limited 2012 / Reuters)