SocGen beats estimates as bond trading offsets retail banking slump (updated)

Ayvens SA

12/05/2023 07:45

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      First-quarter net income rose 5.7%
    

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      French retail division's sales sink 11%
    

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      Lowers full-year cost of risk target
    

  
 (Writes through, adds analysts)
    By Mathieu Rosemain and Matthieu Protard
       PARIS, May 12 (Reuters) - French bank Societe Generale
 SOGN.PA  posted better than expected quarterly earnings on
Friday after turmoil in bond and currency markets boosted its
trading business.
    The trading windfall cushioned a slump in SocGen's French
retail division, where earnings were curbed by stricter interest
rate caps on mortgages and other loans.
    The results come less than two weeks before investment bank
chief Slawomir Krupa takes the helm. The incoming CEO, tasked
with reviving the valuation of France's third-largest listed
bank after years of restructurings and lascklustre performance,
is set to present a new strategic plan in the third quarter. 
    "Performance is tracking well in all the divisions, but the
main issue is French retail,"  JPMorgan said in a note to
clients. 
    Jefferies analysts echoed the sentiment. "We think the
market will focus on French NII (net interest income), taking
the shares down," it said.
    Group net income in the three months to March 31 rose 5.7%
from a year earlier to 868 million euros ($955.5 million),
almost double the average of four analyst estimates compiled by
Refinitiv. 
    High volatility in interest rates and currencies drove
demand for hedging in the quarter, boosting revenue from trading
in fixed income and currency by 16%, the bank said. 
    Those gains surpassed numbers at Deutsche Bank, Goldman
Sachs and BNP Paribas but fell short of Credit Agricole's
performance.
    SocGen's listed car leasing company ALD  ALDA.PA  also
bolstered the results. The bank is set to close its 4.9 billion
euro acquisition of European rival LeasePlan this month.
    
    RETAIL BANKING WOES
    By contrast, sales at SocGen's French retail business
plummeted 11% in the quarter while group revenue fell 5.3% to
about 6.7 billion euros. 
    In addition to the caps on lending rates, SocGen has also
been squeezed by a government-imposed increase to the savings
rates paid on the most popular savings accounts offered by
French banks, called Livret A.
    The phasing out of a cheap long-term loan programme by the
European Central Bank also weighed on results. SocGen is
unlikely to reap the benefits of rising interest rates in its
French retail activity before 2024, the company said. 
    SocGen said it would set aside less money for soured loans
this year than initially planned. It now expects the so-called
"cost of risk" to be below 30 basis points this year, down from
previous guidance of 30-35 points. 
    The French bank maintained its 2025 financial targets,
including a cost to income ratio below 62% and an expected
return on tangible equity of 10%.
($1 = 0.9084 euros)

 (Reporting by Mathieu Rosemain and Matthieu Protard
Additional reporting by Tassilo Hummel
Editing by Lananh Nguyen and David Goodman)
 ((Mathieu.Rosemain@thomsonreuters.com; +33 1 8098 1239; Reuters
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