Societe Generale net falls on writedowns

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.

The bank rose as much as 5 percent in Paris trading after reporting net income of 309 mln euros ($445 mln), exceeding the 68 mln-euro median estimate of 16 analysts surveyed by Bloomberg.

Societe Generale’s investment-banking division narrowed its loss to 12 mln euros, beating analysts’ estimates, as higher equities and fixed-income revenue cushioned the impact of writedowns on risky assets. While provisions for souring loans almost tripled to 1.08 billion euros, the total fell short of analysts’ forecasts.

“What’s good is that provisions were not so high in central and eastern Europe, except Russia,” said Pierre Flabbee, an analyst at Kepler Capital Markets in Paris. “And equity derivatives were very strong,” he said.

Societe Generale rose 1.88 euros, or 4.1 percent, to 48.19 euros by 9:33 a.m. in Paris. The stock climbed 34 percent this year, lagging behind BNP Paribas SA’s 75 percent gain and the 36 percent advance in the 63-company Bloomberg Europe Banks and Financial Services Index.

“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,” Chief Executive Officer Frederic Oudea said in the statement.

Equities, fixed income

Provisions for doubtful loans rose from 387 mln euros a year earlier, Societe Generale reported. Analysts estimated loan losses of 1.35 bn euros.

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

Earnings trailed larger French competitor BNP Paribas for a second quarter in a row. Paris-based BNP Paribas said yesterday that profit increased 6.6 percent to 1.6 bn euros, helped by the acquisition of Fortis assets and higher investment- banking revenue.

The loss at Societe Generale’s corporate- and investment- banking unit shrank from 180 mln euros a year earlier. Analysts estimated a loss of 166 mln euros.

Revenue from the equities business rose 4.2 percent to 745 mln 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 ‘very good’

“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.”

Societe Generale booked 1.7 bn euros of revenue writedowns in the second quarter, including 840 mn 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 mn-euro charge, and the bank wrote down risky assets by 397 mn euros.

Earnings at the French consumer banking unit fell 13 percent to 280 mn euros in the quarter. Profit from international retail banking declined 49 percent to 122 mn 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.

Acquisitions

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.

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 bn-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 bn euros in 2008, posted net income of 31 mln euros in the first half of this year.