Societe Generale's Q4 profit misses analyst estimates

Societe Generale CEO Oudea (left) at a press conference in Paris. The bank indicated it may have difficulty meeting profit targets this year due to record-low interest rates and volatile financial markets.
Societe Generale CEO Oudea (left) at a press conference in Paris. The bank indicated it may have difficulty meeting profit targets this year due to record-low interest rates and volatile financial markets.PHOTO: EUROPEAN PRESSPHOTO AGENCY

PARIS • Societe Generale, France's second-largest bank by market value, posted fourth-quarter profit that missed analysts' estimates as earnings at the investment bank dropped and it set aside provisions for potential legal costs.

Net income rose to €656 million (S$1 billion) from €549 million a year earlier, the company said yesterday.

Earnings fell short of the €944 million average estimate of four analysts surveyed by Bloomberg, as a €400 million litigation charge offset a gain from the sale of a stake in asset manager Amundi.

Societe Generale, led by chief executive officer Frederic Oudea, signalled it may have difficulty reaching its profitability target this year because of "headwinds" that include record-low interest rates and volatile financial markets.

While the bank announced a series of cost-cutting measures last year, it refrained from deeper investment banking reductions like those under way at Deutsche Bank and Credit Suisse Group.

"You have to worry that 2016 will be a weak year for Societe Generale and other banks," said Mr Michael Seufert, an analyst at Norddeutsche Landesbank who has a neutral recommendation on the company's shares. "There are so many factors weighing on them. Clients holding off investments is bad for banks as is the low interest rate environment in Europe."

The shares dropped 7.8 per cent to €28.98 at 9.13am in Paris, extending losses this year to about 32 per cent.

While Societe Generale maintained its target for a 10 per cent return on equity, it said the goal is "unconfirmed" for this year.

The measure of profitability was at 7.9 per cent last year.

Banks across Europe have been cutting costs and shrinking their securities businesses as volatile markets undermine revenue and regulators toughen scrutiny of riskier activities. At Deutsche Bank, co-CEO John Cryan was forced to reassure investors and employees this week that the bank is "rock solid" as concern about capital and funds drove down the value of its stock and bonds.

At Societe Generale, deputy CEO Severin Cabannes said on Bloomberg Television that there's "absolutely no risk" the bank will fail to pay coupons to investors who are holding the bank's additional Tier 1 debt.

Societe Generale announced plans last year to adapt its businesses to increasing regulation and to clients' migration to mobile banking. The company committed to €850 million of additional cost reductions by next year, with 420 job cuts in France, partly at investment banking support teams.

It decided to reduce the number of its French branches by 20 per cent through 2020 and sold its minority stake in asset manager Amundi to raise cash.

Net income last year rose 49 per cent to €4 billion, the highest since 2006, helped by asset sales and accounting gains from the revaluation of the bank's own debt.

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A version of this article appeared in the print edition of The Straits Times on February 12, 2016, with the headline 'Societe Generale's Q4 profit misses analyst estimates'. Print Edition | Subscribe