Bloomberg News

SocGen Second-Quarter Net Slides 42% on Russian, TCW Writedowns

August 01, 2012

Societe Generale SA (GLE), France’s second- largest bank, said second-quarter profit fell 42 percent, missing analysts’ estimates, after the lender took writedowns on its Russian unit and U.S. asset manager TCW Group.

Net income dropped to 433 million euros ($533 million) from 747 million euros a year earlier, the Paris-based bank said by e-mail today. That missed the 695 million-euro average estimate of nine analysts surveyed by Bloomberg. The lender had a 250 million-euro writedown on its Rosbank division in Russia and a 200 million-euro markdown on Los Angeles-based TCW.

The French bank, led by Chief Executive Officer Frederic Oudea, is trimming corporate- and investment-banking assets and cutting about 1,600 jobs at the division, home of its trading business. The lender, hurt by last year’s liquidity crunch and losses on Greek sovereign debt, joined French rivals BNP Paribas SA (BNP) and Credit Agricole SA (ACA) in shrinking balance sheets in most overseas markets and trimming government-debt holdings.

“Despite a difficult environment,” Societe Generale “is making progress, quarter after quarter, in its transformation strategy,” Oudea, 49, said in the statement.

Societe Generale has fallen 48 percent in Paris trading over the past 12 months, giving the company a market value of about 14 billion euros. BNP Paribas, France’s largest lender, has dropped 34 percent in the period.

France’s biggest banks are cutting at least 300 billion euros off their balance sheets to comply with stricter Basel III capital rules, mirroring similar moves by other European lenders such as Deutsche Bank AG (DBK), Germany’s biggest.

‘Difficult Environment’

Societe Generale repeated today that it aims to reach a core capital ratio of between 9 and 9.5 percent, under Basel III, by the end of 2013 without a rights offer.

Societe Generale has cut about 14 percent of its corporate- and investment-banking staff in France this year after shuffling the unit’s management. The lender joins rivals whose earnings were curbed because of weak markets. Deutsche Bank, Europe’s largest investment bank by revenue, yesterday said that second- quarter pretax profit at its securities unit slid 63 percent to 357 million euros.

“Markets were extremely difficult, it’s normal to see trading revenue down,” Valerie Cazaban, who helps manage 100 million euros at Stratege Finance in Paris and owns no shares in Societe Generale, said before the results were announced.

JPMorgan Chase & Co., Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc. (GS:US) and Morgan Stanley had combined first-half revenue of $161 billion, down 4.5 percent from 2011 and the lowest since $135 billion four years ago.

Asset Disposals

Net income at Societe Generale’s corporate- and investment- banking unit fell to 131 million euros from 449 million euros a year earlier, compared with the 102 million-euro average estimate of analysts surveyed by Bloomberg. Revenue from fixed income, currencies and commodities declined 5.8 percent, while sales from the equities markets business dropped 24 percent, the bank said.

Societe Generale has accelerated disposals of subprime-era assets including U.S. residential mortgage-backed securities since mid-2011. In the second quarter, it booked 150 million euros in writedowns and provisions from scaling down subprime- era holdings.

Profit from Societe Generale’s French consumer-banking networks fell 6.3 percent to 360 million euros, matching analysts’ estimates for 365 million euros. At its international retail-banking business, the lender had a 231 million-euro loss compared with a year-earlier profit, hurt by the writedown on Moscow-based Rosbank. (ROSB)

To contact the reporter on this story: Fabio Benedetti-Valentini in Paris at fabiobv@bloomberg.net

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Edward Evans at eevans3@bloomberg.net


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