Fitch says Societe Generale rating stable
Global rating agency Fitch says that Societe Generale's (SG) Q312 earnings release did not provide information that would prompt any rating action. Operating profit for the quarter (EUR1.1bn as calculated by Fitch) was up by 17% compared with Q212 due to the improved performance of its corporate and investment banking (CIB) business. Fitch derives operating profit, its measure of underlying earnings, after adjusting for items such as non-recurring capital losses (EUR380m linked to the sale of the Greek banking subsidiary) and revaluation of own debt (a loss of EUR594m in Q312).
The improved performance of CIB is positive, but is evidence of the earnings volatility of this business at SG. Revenue from capital markets activities (which represents two-thirds of CIB revenue) increased, especially due to fixed income. SG has a stronger franchise in equity derivatives, but is focusing more selectively in fixed income on areas of strength. Revenue from financing activities improved quarter-on-quarter, but continues to suffer not only from reduced volumes as part of the bank's deleveraging plan but also from losses on the sale of loans (EUR84m).
Operating profit from international retail banking also improved, largely on the back of lower loan impairment charges, especially in Russia, although these remain high (160bp of customer loans in Q312 on an annualised basis vs. 211bp in Q212). SG's other business lines were stable, especially French retail banking (which represented roughly half of the bank's Q312 operating profit) and spe- cialised financial services & insurance (which represented 22% of the bank's Q312 operating profit). Loan impairment charges have been stable for both businesses in 2012, but are likely to increase in French retail banking given the weakening economic environment, although they should remain manageable.
SG's Basel 2.5 core Tier 1 regulatory capital ratio rose to 10.3% at end-September 2012 (9.0% at end-2011). This was a result of deleveraging, largely by reducing legacy assets and selling loans, and retention of earnings. The bank is on track to meet its target of a fully loaded Basel III ratio of 9% at end-2013. The bank calculated at end-2011 that the negative impact of a fully loaded Basel III ratio (210bp) would be offset by retained earnings (150bp) and deleveraging at CIB.