Fitch says So­ci­ete Gen­erale rat­ing sta­ble

The Pak Banker - - Front Page -

PARIS

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.

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