SocGen soars on higher cap­i­tal goal

The Pak Banker - - COMPANIES/BOSS -

So­ci­ete Gen­erale gained the most in two years af­ter the bank re­ported the high­est profit since the fi­nan­cial cri­sis, bol­stered by eq­uity trad­ing rev­enue, and raised its cap­i­tal tar­gets.

Net in­come rose 25 per­cent to 1.35 bil­lion eu­ros ($1.47 bil­lion) in the sec­ond quar­ter, the Paris-based com­pany said Wed­nes­day. Quar­terly earn­ings were the high­est in eight years and beat an­a­lyst es­ti­mates. So­ci­ete Gen­erale raised both its core cap­i­tal and lever­age tar­gets.

France's sec­ond-largest bank by mar­ket value is ben­e­fit­ing from gains in stocks and the re­gion's eco­nomic re­cov­ery, fu­eled by an un­prece­dented stim­u­lus by the Euro­pean Cen­tral Bank. Ris­ing reg­u­la­tory ex­penses and the need to in­vest more in dig­i­tal tech­nol­ogy prompted the firm to lower costs by an ad­di­tional 850 mil­lion eu­ros by 2017, the bank said.

"This goes in the right di­rec­tion, we're in a world where banks need cap­i­tal lev­els higher than in the past," said Karim Ber­toni, who helps man­age more than $6 bil­lion at Belle­vue As­set Man­age­ment.

"But when you keep more cap­i­tal, it's more dif­fi­cult to de­liver on prof­itabil­ity and this ex­plains cost cuts."

The bank's shares rose as much as 9.2 per­cent, the most in two years, to 48.77 eu­ros and were 8 per­cent higher as of 11:35 a.m in Paris trad­ing.

So­ci­ete Gen­erale's eq­ui­ties trad­ing rev­enue jumped to 799 mil­lion eu­ros in the quar­ter from 496 mil­lion eu­ros a year ear­lier. Cor­po­rate fi­nanc­ing and ad­vi­sory rev­enue rose about 26 per­cent to 685 mil­lion eu­ros, while fixed-in­come sales fell 15 per­cent.

"We have a well po­si­tioned, well suited cor­po­rate and in­vest­ment bank­ing busi­ness model which is de­liv­er­ing a very strong and sus­tain­able prof­itabil­ity so we don't need like maybe some other Euro­pean play­ers to re­fo­cus," Chief Ex­ec­u­tive Of­fi­cer Fred­eric Oudea said in an in­ter­view with Bloomberg Tele­vi­sion.

Cost re­duc­tions will be im­ple­mented across the firm, while it's "pre­ma­ture" to com­ment on whether jobs will be cut, Oudea said. So­ci­ete Gen­erale achieved al­most all of its pre­vi­ous 900 mil­lion-euro cost cut­ting plan be­tween 2013 and 2015.

The bank's com­mon eq­uity Tier 1 ra­tio, a key mea­sure of fi­nan­cial strength, rose to 10.4 per­cent at the end of June from 10.1 per­cent on March 31. The com­pany raised its tar­get to 11 per­cent by the end of 2016 from at least 10 per­cent.

"The new cap­i­tal guid­ance is par­tic­u­larly good," said Alain Tchi­bozo, an an­a­lyst at Me­diobanca SpA, who rates the stock out­per­form. The new core cap­i­tal tar­get will prob­a­bly al­low So­ci­ete Gen­erale to in­crease its div­i­dend pay­outs, he said.

So­ci­ete Gen­erale sees a 20 ba­sis­point boost to its cap­i­tal ra­tio from selling its hold­ing in as­set man­ager Amundi in an ini­tial public of­fer­ing this year, the bank said in June.

Its French con­sumer-bank­ing net­work had 419 mil­lion eu­ros in sec­ondquar­ter profit, up from 348 mil­lion eu­ros a year ear­lier, the bank said.

So­ci­ete Gen­erale set aside 200 mil­lion eu­ros in le­gal pro­vi­sions in the quar­ter, bring­ing its to­tal to 1.3 bil­lion eu­ros. The quar­ter's profit was boosted by a 312 mil­lion-euro gain re­lated to the reval­u­a­tion of the bank's own debt.

Profit from in­ter­na­tional re­tail bank­ing fell 6.6 per­cent to 312 mil­lion eu­ros, hurt by a 45 mil­lion-euro loss in Rus­sia, So­ci­ete Gen­erale's sec­ond­largest mar­ket by staff.

De­spite a con­trac­tion of the Rus­sian econ­omy, So­ci­ete Gen­erale's lo­cal unit halved its loss from the first quar­ter and cut 1,200 jobs. SocGen's stock re­cov­ery has suf­fered a "de­lay com­pared with the re­turn of con­fi­dence in the euro zone, partly be­cause of Rus­sia," said Ro­main Bur­nand, who helps man­age 3 bil­lion eu­ros at Moneta As­set Man­age­ment in Paris and owns shares in So­ci­ete Gen­erale. Rus­sia "re­mains an is­sue, but it must be con­sid­ered rel­a­tively to the other ac­tiv­i­ties."

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