SocGen beats estimates as bond trading offsets retail banking slump
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2023-05-12 18:49
By Mathieu Rosemain and Matthieu Protard PARIS (Reuters) -French bank Societe Generale posted better than expected quarterly earnings on Friday

By Mathieu Rosemain and Matthieu Protard

PARIS (Reuters) -French bank Societe Generale 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.

SocGen shares were up 1.4% at 1025 GMT after reversing course in the morning. The shares have lost close to 6% of their value since the start of the year, underperforming French rivals BNP Paribas and Credit Agricole.

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 but fell short of Credit Agricole's performance.

SocGen's listed car leasing company ALD 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 ProtardAdditional reporting by Tassilo HummelEditing by Lananh Nguyen and David Goodman)

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