SocGen Investment Bank Emerges From Slump as French Retail Lags

(Bloomberg) -- Societe Generale SA’s investment bank is emerging from the doldrums. The French consumer bank, however, remains adrift.

The securities unit posted better-than-expected second-quarter earnings as income from financing deals climbed and trading topped estimates. The division weathered a challenging climate in Europe while benefiting from demand for prime services and volatility in rates and commodities. At the French retail business, SocGen forecast lower revenue this year.

SocGen bounced back from a dismal first-quarter performance, a period that included the sudden departure of investment bank boss Didier Valet. Chief Executive Officer Frederic Oudea further shook up management in May, naming four deputies, and also settled regulatory probes into the bribery of Libyan officials and interest-rate manipulation. It’s setting aside an additional 200 million euros ($233 million) for remaining legal issues.

“We are in a strange environment,” Oudea said in a Bloomberg Television interview on Thursday. “Economic activity and the outlook remain pretty strong and at the same time there are elements of risk that are not so easy to calibrate.”

Concerns over worsening trade tensions drove stocks lower in Europe. SocGen shares were down 2.4 percent as of 11:37 a.m. in Paris at 37.07 euros.

Revenue at its French retail-banking unit fell 1.7 percent in the second quarter, worse than the decline seen at rival BNP Paribas SA. SocGen is expecting revenue to decline between 1 percent and 2 percent at the unit this year.

“The more cautious guidance on French retail banking is a negative,” Anke Reingen, an analyst at RBC Capital Markets in London, wrote in a note to investors. “The earnings outlook remains uncertain given the volatile performance in CIB, weaker trends in French retail banking and the impact of disposals” hitting the profit and loss account.

Still, lower bad-loan provisions helped profit beat expectations at the French consumer bank and at the international banking and financial services unit. As a result, group revenue and net income also exceeded the estimates of six analysts surveyed by Bloomberg News.

The Paris-based bank, a global leader in equity derivatives, recorded a 4 percent decline in revenue from stock trading and prime services. Income from buying and selling bonds, currencies and commodities slipped 1 percent from a year earlier. Leaving aside the effects of foreign exchange swings, debt trading edged higher, while equities slipped 1 percent. Financing and advisory revenue rose about 5 percent to the highest in more than two years.

The bank said the return of volatility, especially around the Italian elections, boosted client activity in rates and commodities.

Lagged Rivals

The numbers improved from first-quarter levels that left investors disappointed. Even so, the trading performance lagged behind the biggest U.S. firms.

Shares of Societe Generale are down about 14 percent this year, compared with the 13 percent decline in BNP Paribas, France’s biggest bank.

Despite a tough start to the year, Oudea is sticking to SocGen’s 2020 targets. He’s making progress with planned disposals while seeking to boost its positions in market-making and exchange-traded products most recently by acquiring Commerzbank AG’s equities markets and commodities unit.

SocGen is also considering potential asset sales or closures of sub-scale businesses that may represent 5 percent of its risk-weighted assets. This week, it agreed to sell its Belgian private-banking unit to ABN Amro Group NV.

Here are other highlights from SocGen’s second-quarter results:

  • Net income 1.16 billion euros, beating 1 billion-euro estimate
  • Revenue 6.45 billion euros, vs 6.16 billion-euro estimate
  • GBIS unit profit 507 million euros vs 401 million-euro estimate
  • CET1 capital ratio 11.1% at end-June, down from 11.2% March
  • SocGen sees bad-loan provisions within 20-25 bps range in 2018
  • Bank reiterates potential settlement of U.S. probe into sanctions violations may come within weeks; uncertainty over impact

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