SocGen Q3 earnings beat estimates as investment bank offsets French slump

Societe Generale, France’s third-biggest listed bank, posted better-than-expected quarterly earnings on
Friday, as a resilient performance from its investment bank offset the steep downturn seen at its French retail division.

SocGen’s third-quarter reported group net income came in at 295 million euros ($313.2 million), above the 168 million-euro average of 13 analyst estimates compiled by the company.

It was down 80% from a year earlier, as the bank booked 340 million euros in write-downs tied to some of its activities on top of a 270 million-euro provision for deferred tax assets.

Both hits to SocGen’s bottom line had been flagged at the bank’s investor day in September. Group revenues dropped by 6.2% from a year earlier to about 6.2 billion euros, below the average of 6.3 billion expected by analysts.

SocGen’s CEO Slawomir Krupa, who took the reins of the company in May, is striving to revive the bank’s shares by delivering on the cost-cutting and conservative targets he set out in September.

But his mid-term targets, which include a meager annual revenue growth target of 0 to 2% by 2026, were deemed disappointing by investors who expected higher returns to shareholders, sending shares down by more than 10%.

The current year, dubbed a year of “transition” by SocGen, is marked by the integration of car-leasing company LeasePlan by the bank’s listed rival ALD, under the brand Ayvens. The bank has also finalised the merger of its two French retail networks.

The two transactions have weighed on costs, at a time when the French retail market, in stark contrast with other European countries, yields lower margins even as interest rates have risen at the fastest pace in recent history.

Stringent French rules on mortgage rate-fixing, combined with a government-fixed remuneration rate on the country’s most popular savings account have limited the benefits of higher rates on French banks’ net interest income (NII) — earnings on loans minus the cost of deposits.

NII at the French retail division fell by 27% in the quarter, excluding two regulated savings accounts.

In this context, the 0.4% drop in sales seen at SocGen’s investment bank, compares well with some of its European peers.

Revenue from trading in fixed income and securities was down 4.6%, outperforming bigger French rival BNP Paribas, Deutsche Bank and Barclays as less volatile financial markets dent investment banks’ earnings.

The corporate financing and advisory business saw sales up by 2.1%, helping propel the division’s net profit, which was up 7.7% over the period.

SocGen cut the full-year target for its cost of risk — money set aside for bad loans — to “below 20 basis points”, down from a guidance of below 30 basis points.