Bloomberg News

SocGen and Credit Agricole Gain as Profit Beats Estimates

May 08, 2013

Societe Generale First-Quarter Net Falls 50% on Own-Debt Charges

A customer uses an automated teller machine (ATM) at the Societe Generale SA headquarters, in the La Defense business district in Paris. Societe Generale has gained 59 percent in Paris trading in the last 12 months, giving the firm a market value of about 22.3 billion euros. Photographer: Fabrice Dimier/Bloomberg

(Corrects market value of Credit Agricole in fifth paragraph in story published yesterday.)

Societe Generale SA (GLE) and Credit Agricole SA (ACA), France’s second- and third-largest banks by market value, rose in Paris trading after reporting first-quarter profit that beat analysts’ estimates.

Societe Generale gained 5.1 percent after posting a smaller-than-estimated drop in net income to 364 million euros ($476 million), topping the 317 million-euro average forecast of 10 analysts surveyed by Bloomberg. Credit Agricole added about 1 percent as profit rose 51 percent to 469 million euros, ahead of the 374 million-euro average estimate of eight analysts.

The two French lenders are turning to cost cuts to boost earnings and strengthen capital as the economy slumps in their home market. Societe Generale trimmed about 1,600 corporate and investment-banking jobs last year and said today it plans 900 million euros in additional cost savings by 2015. Credit Agricole’s quarterly profit rebounded after the company shed its unprofitable Greek unit and reduced expenses by 3.5 percent.

“The stories are not the same, but both are showing supportive elements,” said Jacques-Pascal Porta, a fund manager at Ofi Gestion Privee in Paris with 600 million euros under management and which doesn’t own shares in Societe Generale or Credit Agricole. “The operating performances are backed by cost reductions, and on top of that Credit Agricole is starting a new life after exiting Greece.”

Societe Generale rose to 29.96 euros at 9:40 a.m. in Paris, giving it a market value of 23.3 billion euros. Credit Agricole advanced to 7.27 euros for a market value of 18.2 billion euros.

‘Cost Synergies’

First-quarter profit at Paris-based Societe Generale was curbed by accounting charges of 1.05 billion euros related to the revaluation of its own debt.

“In order to further boost the group’s performance over the medium term, we will continue to adapt the business and leverage cost synergies,” Chief Executive Officer Frederic Oudea, 49, said in a statement. He forecasted the bank will “be in a position to generate” a return on equity of 10 percent by the end of 2015.

Credit Agricole’s disposal of its Emporiki unit in Greece helped bolster earnings in the period, while the lender, based in Montrouge near Paris, also shut its riskiest investment-banking businesses.

The first-quarter results showed the “stability” of the bank’s key businesses following the Emporiki sale, Credit Agricole CEO Jean-Paul Chifflet, 63, said on a call with journalists. He also reiterated the firm aims for “significantly positive” net income in 2013 following two consecutive years of annual deficits.

Job Cuts

Net income at Societe Generale’s corporate and investment banking division rose 41 percent to 494 million euros, beating analysts estimates of 289 million euros. Global-markets revenue fell 13 percent to 1.44 billion euros, it said.

Societe Generale in February outlined plans to reorganize its main business into three units made up of French consumer banking and a new division combining international retail banking with specialized financial services. It is also combining corporate and investment banking with investment-management services including private banking.

Societe Generale is in discussions with its labor unions in France for a job-cutting plan at its Paris headquarters with a “first step” of 550 staff reductions, Deputy CEO Severin Cabannes said in a Bloomberg Television interview. The bank plans a “very strict management” of external expenses and is continuing its “internal pooling of resources,” he said.

The company is planning to book 600 million euros of one-time costs and investments as part of the reorganization to reach 900 million euros of additional savings by 2015. After 550 million euros achieved last year, that brings total expense reductions to 1.45 billion euros over the period, it said today.

Fixed Costs

Net income at Credit Agricole’s corporate and investment bank fell 50 percent to 238 million euros in the quarter, beating analysts estimates of 193 million euros. Revenue from capital markets fell 31 percent, while corporate-lending sales dropped 14 percent, it said.

Credit Agricole aims to reach a 12 percent return on equity, a profitability measure, at the corporate and investment bank over the “medium term” by cutting fixed costs by about 15 percent compared with 2011, the firm said in March.

Both companies, like BNP Paribas SA (BNP), France’s largest, started trimming its balance sheet in 2011 after French lenders had access to U.S. dollar funding and European debt markets blocked. Last year, France’s three largest banks shrank risk-weighted assets by a combined 128 billion euros and cut thousands of investment-banking jobs.

French Slump

Now French banks are counting the cost of the economic slump at home. The economy has barely grown over the past two years and joblessness is at a record high. The total retail-banking revenue of the country’s five largest lenders, including Groupe BPCE and Credit Mutuel-CIC, last year declined for the first time in two decades and it will probably keep falling 1.2 percent annually through 2015, according to Munich-based Roland Berger Strategy Consultants.

BNP Paribas last week reported a smaller decline in first-quarter profit than analysts estimated, helped by French and Belgian consumer banking.

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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