December 5, 2023

DealBook: Société Générale Profit Falls 42% as Economy Slumps

A branch of Société Générale in Paris.Jacques Brinon/Associated PressA branch of Société Générale in Paris.

PARIS — Société Générale posted a disappointing quarter, as the French bank got buffeted by the global economic headwinds.

Net profit in the second quarter fell 42 percent to 433 million euros, or $533 million, from a year ago. Analysts had been expecting the bank to earn 764 million euros.

The bank also said it was making progress in bolstering its capital cushion. Regulators have been pushing banks to increase their safety net to protect against their potential loss.

“Despite a challenging environment, the Société Générale Group has progressed, quarter after quarter,
with its transformation strategy, in line with its objectives,” Frédéric Oudéa, the bank’s chief executive said in a statement.

With the global economy souring, the French bank faced a series of charges related to past acquisitions. Société Générale took a 250 million euro writedown on Rosbank in Russia.

Amid rocky market conditions. Société Générale also cut the value of the TCW Group, the fund firm in Los Angeles, by 200 million euros. Analysts are waiting to see whether Société Générale may sell off TCW as part of a broader plan to shed assets to raise money

Like the results of its peers, the bank’s earnings raised concerns that the financial weakness could persist as the debt crisis drags on.

The bank said growth in Europe had slowed “significantly” in the second quarter, crimping some of its profitability from retail operations. The firm’s international retail banking revenue fell to 1.24 billion euros, a drop of nearly 2 percent.

The bank, one of Europe’s largest, signaled that it also continued to face financial challenges with its Greek subsidiary, Geniki Bank. In a statement, Société Générale said its operations in Central and Eastern Europe “excluding Greece” did well, although it did not provide figures for the Greek unit. Société Générale has recently cut financing to Geniki to a minimum as the Greek economy craters.

French banks have been slashing their exposure to Greece by selling off much of nation’s sovereign debt, and those with subsidiaries are scrambling to figure out how to cope with a worsening of the situation in Greece. A rival, the French bank Crédit Agricole, said recently that it was in talks to sell its Greek subsidiary, Emporiki Bank, as soon as possible.

The debt crisis is also wreaking havoc on their investment banking business, as customers remain reticent given the precarious situation in Europe and policymakers struggle to find “durable solutions to the sovereign debt crisis,” the bank said. Corporate and investment banking revenue in the second quarter fell more than 30 percent to 1.22 billion euros.

Société Générale also noted deteriorating conditions in France, which has the largest economy in the euro zone after that of Germany. So far, France has avoided the worst of the debt crisis that first engulfed Greece and now Spain. But the economy has been softening, and the government is likely to face a rising bill as the costs of cleaning up the crisis grow. The bank’s French retail operations remained flat at 2.04 billion euros.

Société Générale said investors had been cautious about France during the presidential elections in May as they waited to see what policies a new government would apply to a country is experiencing “very weak growth.”

In morning trading in Paris, shares in the French bank had risen less than 1 percent.

Article source: