Societe Generale Net Falls on Writedowns, Provisions

Societe Generale Net Falls on Writedowns, Provisions

Aug. 5 (Bloomberg) -- Societe Generale SA, France’s second- largest bank by market value, said profit dropped 52 percent in the second quarter, less than analysts estimated, on asset writedowns and higher loan-loss provisions.

Net income fell to 309 million euros ($445 million) from 644 million euros a year earlier, the Paris-based bank said in an e-mailed statement today. Earnings exceeded the 68 million- euro median estimate of 16 analysts surveyed by Bloomberg as the loss at the investment bank narrowed.

Societe Generale, led by Chief Executive Officer Frederic Oudea, trailed larger French competitor BNP Paribas SA for a second quarter in a row as the bank marked down investments and set aside more money for souring loans. BNP Paribas said yesterday that profit increased 6.6 percent to 1.6 billion euros, helped by the acquisition of Fortis assets and higher investment-banking revenue.

“In an environment of global recession, the group is focusing on consolidating its market share, controlling risks and restructuring the activities most severely affected by the crisis,” Oudea, 46, said in the statement.

Societe Generale rose 29 percent this year in Paris trading, lagging behind BNP Paribas’s 74 percent gain and the 35 percent advance in the 63-company Bloomberg Europe Banks and Financial Services Index.

Equities, Fixed Income

Provisions for doubtful loans totaled 1.08 billion euros in the second quarter, up from 387 million euros a year earlier, Societe Generale reported. Analysts estimated loan losses of 1.35 billion euros.

The bank said last month that net income was “slightly positive” in the second quarter after writedowns.

The corporate- and investment-banking unit recorded a 12 million-euro net loss in the second quarter, narrowing from a 180 million-euro deficit a year earlier. Analysts estimated a loss of 166 million euros.

Revenue from the equities business rose 4.2 percent to 745 million euros, Societe Generale said. While client demand shrank for complex products, there was a “rebound in flow products” compared with the first quarter, the company said. Fixed income, commodities and currencies revenue surged to 821 million euros from 58 million euros.

“July remained very good,” Oudea said in an interview with BFM Radio today, speaking of activity at the investment bank. “We are in an environment where we see normalization signs, namely in the U.S., but let’s remain prudent. There are still underlying risks that can materialize.”

Consumer Banking

Societe Generale booked 1.7 billion euros of revenue writedowns in the second quarter, including 840 million euros for marking to market credit default swaps used to hedge its corporate loan book. An improvement in the company’s own debt led to a 459 million-euro charge, and the bank wrote down risky assets by 397 million euros.

Earnings at the French consumer banking unit fell 13 percent to 280 million euros in the quarter. Profit from international retail banking declined 49 percent to 122 million euros, mostly hurt by the bank’s main market outside of France, Russia, where “the crisis has had a heavy impact” on revenue and the level of risky-loan provisions deteriorated.

Societe Generale reduced headcount at the international retail business by 1.1 percent in the quarter to 62,800 employees, it said. The bank announced in May plans to trim the staff at its Russian retail unit, OAO Rosbank, by 10 percent.

Acquisitions

Societe Generale may look for takeover opportunities to expand its retail banking and private banking units, Oudea said in the interview on BFM Radio. “If there are opportunities, why not make acquisitions.”

CEO Oudea took on the additional role of chairman in May after the resignation of Daniel Bouton. The 59-year-old Bouton, who ran the bank for more than a decade, stepped down after complaining of “repeated attacks” in the months following a 4.9 billion-euro trading loss in January of last year, which the bank blamed on former employee Jerome Kerviel. Kerviel, 32, has claimed the bank knew of his actions.

Standard & Poor’s lowered the bank’s long-term counterparty credit rating by one step to A+ from AA- on May 7, and its short-term rating to A-1 from A-1+. The rating company said at the time that the possibility of further markdowns and slumping economies meant the likelihood profit this year would match last year’s level was “remote.”

The bank, which earned 2 billion euros in 2008, posted net income of 31 million euros in the first half of this year.

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