SOCIETE GENERALE: QUARTERLY FINANCIAL INFORMATION

Tue Nov 8, 2011 1:02am EST

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QUARTERLY FINANCIAL INFORMATION
Paris, November 8th, 2011
Q3 2011:  Group net income of Eur 622M
  • Revenues: EUR 6.5bn (+4.0%* vs. Q3 10)  

  • Good performance by Retail Banking inside and outside France, positive contribution from Corporate and Investment Banking 

  • Stable cost of risk excluding Greece (51 bp**) 

  • No significant impact on Q3 11 results of non-recurring items 

9 MONTHS 2011: GROUP NET INCOME OF EUR 2,285M  

  • EPS(1)  EUR 2.77 

ADAPTATION OF THE BALANCE SHEET AND STRENGTHENING OF CAPITAL BASE

  • Decline in GIIPS sovereign risk exposure to a very low level: EUR 3.4bn at end-October 2011 

Greek government bond provisioning rate raised to 60% (EUR -333m before tax)

  • Increase in Group provisioning: NPL coverage ratio increased from 71% to 74% 

  • Disposal of EUR 10bn of legacy assets between July 1st and November 1st with a modest impact on net banking income (EUR -121m before tax) 

  • Substantial decline in liquidity needs: EUR -40bn since end-June 

  • Board proposal not to distribute a dividend in respect of the 2011 financial year 

->  Core Tier 1 ratio of 9.5% at end-September 2011

-> Sharp reduction in capital need by mid-2012 in order to meet EBA     requirements: EUR 2.1bn vs. an initial estimate of EUR 3.3bn

*   When adjusted for changes in Group structure and at constant exchange rates.

** Cost of risk excluding litigation issues, legacy assets, Greek government bond write-down and specific Geniki provisions

 (1) After deducting interest to be paid to holders of deeply subordinated notes and undated subordinated notes (respectively EUR 225 million   and EUR 18 million)

The Board of Directors of Societe Generale examined the Group's financial statements for Q3 and the first nine months of 2011 on November 7th, 2011. Group net income totalled EUR 622 million in Q3. It includes several non-recurring items without any overall impact on the results. The main non-recurring items are, on the one hand, the positive impact of the revaluation of own financial liabilities (EUR +542 million), and on the other hand, the write-down of Greek government bonds (EUR -239 million or
EUR -333 million before tax and minorities) taking their provisioning rate to 60%, and a EUR -200 million goodwill impairment in respect of the consumer finance activities of the Specialised Financial Services and Insurance division. When restated for these items, the Group's results testify to the solidity of the core businesses and the Group's resilience in a particularly difficult environment.

The French Networks continued to benefit from buoyant commercial activity and robust financial results. International Retail Banking provided further evidence of the improvement in its performance, except for Greece, where the Group increased the NPL coverage ratio for its Geniki subsidiary. Corporate and Investment Banking results were impacted by the tense situation in the markets, but remained positive. Specialised Financial Services succeeded in stabilising its outstandings, while at the same time managing a considerable liquidity and capital constraint. Private Banking, Global Investment Management and Services demonstrated its resilience in a challenging market environment.

In the turbulent environment that characterised the third quarter, the Group adopted a highly prudent credit and market risk management policy. In the face of the tensions that appeared during the summer regarding US dollar liquidity, Societe Generale thus demonstrated its ability to rapidly adapt.  Against this backdrop, the Group has accelerated its transformation process and is aiming to significantly reduce its balance sheet and financing needs by end-2013. Initiatives rapidly undertaken within Corporate and Investment Banking - accelerated disposal of legacy assets (EUR 10 billion between July 1st and November 1st, for an NBI effect of EUR -121 million over the period) and withdrawal from or reduction of some financing activities - have  already made it possible to achieve more than two-thirds of the announced reduction.

On October 27th, the European Banking Authority published a new capital requirement for European banks. They will have to strengthen their capital by mid-2012 in order to achieve a Basel 2 Core Tier 1 ratio, including CRD 3 provisions, of 9%, with an additional buffer covering unrealised capital losses on sovereign debt exposure at September 30th, 2011. In light of this new requirement and whereas the Group had already increased its solvency ratios since the beginning of the year, the Board of Directors has made the strengthening of the Group's capital the priority. It has decided to propose not distributing a dividend in respect of the 2011 financial year to the Annual General Meeting. The write-back of the dividend provision and the Q3 earnings resulted in a higher Basel 2 Core Tier 1 ratio of 9.5% at end-September 2011 (vs. 8.5% at December 31st, 2010). On this basis, the need to strengthen the Group's capital amounts to EUR 2.1 billion (data at September 30th, 2011), which it will cover by June 30th, 2012 through its own resources (profits allocated to reserves, strict control of risk-weighted assets, asset disposals).

Frédéric Oudéa, the Group's Chairman and CEO, stated: "In a challenging environment, Q3 demonstrated the Group's resilience: the profit-generating capacity of the core businesses is robust. We are working to adapt the core businesses most affected by the crisis, paying particular attention to cost control, in particular via the realignment of our operating infrastructure, a significant decline in performance-linked pay within Corporate and Investment Banking and productivity gains scheduled for 2012 in International Retail Banking. We have resolutely started to reduce the balance sheet by limiting the needs of our Corporate and Investment Banking division, disposing of a significant amount of our legacy assets at a low cost for the Group, and halving our sovereign debt exposure to GIIPS countries since the beginning of the year. We are giving priority to the strengthening of the Group's capital to ensure we meet the prudential requirements of the EBA by mid-2012 and Basel 3 in 2013 as quickly as possible."

  1. GROUP CONSOLIDATED RESULTS 

Net banking income

The Group's net banking income totalled EUR 6.5 billion in Q3 2011 (EUR 6.3 billion in Q3 10) and EUR 19.6 billion for the first nine months of 2011, stable (+0.6%*) vs. the same period in 2010.

If the effect of the revaluation of own financial liabilities is stripped out, revenues were down -10.6%* vs. Q3 10 and -0.5%* comparing the first nine months of 2011 and 2010.

The results for Q3 and 9M 11 reflect the mixed situation for the Group's core businesses: the good performance of Retail Banking and Specialised Financial Services and Insurance offset the revenue decline in Corporate and Investment Banking and Private Banking, Global Investment Management and Services.

  • The French Networks posted Q3 11 revenues of EUR 2,035 million, up +6.4% vs. Q3 10 (+1.4% excluding PEL/CEL effect and SMC). For 9M 11, the French Networks' net banking income rose +6.5% in absolute terms vs. 9M 10 to EUR 6,111 million (+2.3% excluding PEL/CEL effect and SMC); 

  • International Retail Banking's net banking income totalled EUR 1,229 million (-2.3%* vs. Q3 10). International Retail Banking was underpinned by the commercial dynamism of the franchises in Eastern Europe (especially in the Czech Republic and Russia), the Mediterranean Basin, Sub-Saharan Africa and French overseas territories. This helped offset the still challenging situation in Greece and the slow economic pick-up in Romania. Healthy deposit inflows across International Retail Banking enabled it to reduce the loan/deposit ratio to 98%, despite the growth in outstanding loans. For 9M 11, net banking income was stable (+0.1%) at EUR 3,678 million (EUR 3,673 million in 2010); 

  • Corporate and Investment Banking's core activities saw their revenues shrink -36.8%* in Q3 11 vs. Q3 10 (and -31.0%* vs. Q2 11) to EUR 1,247 million. The decline was due to a challenging environment in the debt markets, with very weak activity in the primary market especially in Europe, and the effects of the European sovereign debt crisis on secondary markets. That said, equity derivative activities proved resilient in Q3, confirming their leadership position.  

Corporate and Investment Banking's legacy assets made a slightly negative contribution to the division's revenues (EUR -37million in Q3 11).

Corporate and Investment Banking's revenues totalled EUR 1,210 million in Q3 11 (-36.0%* vs. Q3 10). Cumulative revenues at end-September 2011 amounted to EUR 5,325 million, down -7.5%* vs. the cumulative figure at end-September 2010.

  • Despite being subject to a capital and liquidity constraint, Specialised Financial Services and Insurance's revenues continued to grow to EUR 850 million in Q3 (+2.6%* vs. Q3 10) and EUR 2,594 million for 9M 11 (+3.7%* vs. 9M 10). Within Specialised Financial Services, there was further evidence of the good performance of operational vehicle leasing and fleet management activities. At the same time, the division's insurance activities have made a growing contribution to net banking income, with growth driven by life insurance whose revenues rose +21.2%* between Q3 10 and Q3 11 (+15.5%* in the first nine months of the year). 

  • The net banking income of Private Banking, Global Investment Management and Services experienced a mixed trend. While the Broker business profited from the volatile situation in the markets, Private Banking, Asset Management and Securities Services were, in contrast, hit by a decline in their commissions on the back of the unfavourable trend in the financial markets. The division's revenues totalled EUR 542 million (down -3.7%* vs. Q3 10) and EUR 1,669 million for the first nine months (generally stable (+0.7%*)  vs. the same period in 2010).  

The revaluation of own financial liabilities had an impact of EUR +822 million in Q3 11, due to the Group's increased effective refinancing cost (EUR -88 million in Q3 10). At end-September 2011, the cumulative effect of the revaluation of own financial liabilities on net banking income for the current year amounted to EUR +476 million vs. EUR +268 million for the same period in 2010.

Operating expenses

Operating expenses amounted to EUR 4.0 billion in Q3 11 (+0.7%* vs. Q3 10) and EUR 12.6 billion for 9M 11 (+5.3%* vs. 9M 10).

Operating expenses were slightly lower in the last two quarters in absolute terms.

Overall, the cost to income ratio was 70.7%(a) in Q3 11 and 66.0%(a) for 9M 11, in a challenging environment for financial activities and also reflecting the operating investments made across the Group.

Operating income

The Group's Q3 gross operating income, excluding the revaluation of own financial liabilities, totalled EUR 1.7 billion (EUR 2.3 billion in Q3 10). The figure was EUR 6.5 billion for 9M 11 (-9.4% vs. 9M 10).

The Group's net cost of risk amounted to EUR -1,192 million in Q3 11 (vs. EUR -918 million in Q3 10 and EUR -1,185 million in Q2 11) including EUR -333 million in respect of a Greek government bond write-down. When restated for this write-down and the cost of risk of Corporate and Investment Banking's legacy assets, the Group's cost of risk was EUR -741 million, up +12.3% vs. Q2 11.

If Greece is stripped out (Geniki subsidiary), the Group's cost of risk was stable at 51[1]**) basis points in Q3 11 (vs. 50 bp in Q2 11 and 68 bp in Q3 10).
  • In line with the 2011 guidance of 40 bp, the French Networks' cost of risk amounted to 37 bp in Q3 11 vs. 36 bp in Q2 11 and 46 bp in Q3 10. 

  • International Retail Banking's cost of risk (excluding Geniki) provided further evidence of the downtrend initiated since the beginning of the year at 81 bp in Q3 11 (vs. 100 bp in Q2 11 and 129 bp in Q3 10). The Q3 cost of risk fell in Russia and the Czech Republic, whereas it rose in Romania due to the reassessment of collateral. In Greece, the Geniki subsidiary posted a higher net cost of risk, following the increase in corporate provisions, at EUR 181 million, representing a NPL coverage ratio of 70% in Q3 11. In Sub-Saharan Africa and the Mediterranean Basin the cost of risk remained low. 

  • The cost of risk for Corporate and Investment Banking's core activities was 25 bp (vs. 0 bp in Q2 11 and 4 bp in Q3 10) characterised by the still low level of specific provisions and the increased portfolio-based provision. Legacy assets' net cost of risk amounted to EUR -118 million (vs. EUR -130 million in Q2 11 and EUR -108 million in Q3 10).  

  • Specialised Financial Services' cost of risk continued to improve in Q3 11 (137 bp vs. 156 bp in Q2 11 and 221 bp in Q3 10) both for consumer finance and equipment finance. 

At 74% in Q3 11, the Group's NPL coverage ratio increased significantly compared with the previous quarter (71%), testifying to the Group's prudent provisioning policy.

The EUR -333 million Greek government bond write-down has been booked to the Corporate Centre pending the actual exchange operations provided for under the European agreement of October 27th, 2011.

The Group's operating income totalled EUR 1,294 million in Q3 11 (-3.7% vs. Q3 10), down -43.8% excluding the effect of the revaluation of own financial liabilities and the Greek government bond write-down.

Operating income amounted to EUR 3.7 billion for the first nine months, down -0.8%* excluding the revaluation of own financial liabilities and the Greek government bond write-down, vs. the same period in 2010 (-3.4% in absolute terms).

Net income

After taking into account tax (the Group's effective tax rate was 34.6%) and non-controlling interests, Group net income totalled EUR 622 million in Q3 (vs. EUR 896 million in Q3 10, -30.6%) and
EUR 2,285 million for the first nine months of the year (vs. EUR 3,043 million for 9M 10, -24.9%).

This variation is due in particular to the Greek government bond write-down (for EUR -239 million in Q3 11 and EUR -507 million on a cumulative basis) and the EUR -200 million goodwill impairment in respect of consumer finance activities.

Group ROE after tax was 5.4% in Q3 11 and 7.0% in 9M 11, for a ROTE of 8.9% in 9M 11. Earnings per share amounts to EUR 2.77 over this period, after deducting interest to be paid to holders of deeply subordinated notes and undated subordinated notes[2].

  1. THE GROUP'S FINANCIAL STRUCTURE 

Capital and Solvency

Group shareholders' equity totalled EUR 48.1 billion[1] at September 30th, 2011 and net asset value per share was EUR 54.62 (including EUR -0.13 of unrealised capital losses). The Group acquired 16.8 million Societe Generale shares in Q3. This includes 8.9 million shares acquired under the liquidity contract concluded on August 22nd, 2011. Over this period, Societe Generale also proceeded to dispose of 7 million shares via the liquidity contract. All in all, at end-September, 2011, Societe Generale possessed, directly and indirectly, 27.9 million shares (including 9.0 million treasury shares), representing 3.60% of the capital (excluding shares held for trading purposes). At this date, the Group also held 7.5 million purchase options on its own shares to cover stock option plans allocated to its employees.

Basel 2 risk-weighted assets (EUR 334.5 billion at September 30th, 2011 vs. EUR 333.0 billion at June 30th, 2011) were 0.1% lower excluding the exchange rate effect. This reflects the Group's prudent management policy in the unstable economic environment in Q3, with in particular a decline in market risk exposure (-4.6%) and a reduction in risk-weighted assets allocated to the legacy assets portfolio (-7.6%).

Given the Board of Directors' decision to propose not paying a dividend in respect of the 2011 financial year to the Annual General Meeting, Tier 1 and Core Tier 1 ratios at September 30th, 2011 amounted to respectively 11.6%2 and 9.5%, up 100 basis points vs. December 31st, 2010 (when they stood at respectively 10.6% and 8.5%). This significant increase during the first nine months of the year illustrates the Group's capital-generating capacity (realised earnings, shareholders' subscription to the scrip dividend option, capital increase for employees), which contributed +98 bp to this growth, and the proactive management of the Group's legacy assets.  The disposal of legacy assets during the financial year and the natural amortisation of the portfolio contributed +28 bp to the growth of prudential capital.

Balance Sheet and Liquidity

The Group's cash balance sheet, after the netting of insurance, derivatives, repurchase agreements and adjustment accounts, totalled EUR 654 billion at September 30th. Shareholders' equity, customer deposits and medium/long-term resources represented EUR 500 billion, or more than three-quarters of the balance sheet and covered the Group's long-term application of funds.

Meanwhile, short-term resources (EUR 154 billion) financed the surpluses deposited in central banks (EUR 39 billion) and short-term assets.

Available assets eligible for central bank refinancing amounted to EUR 77 billion, with an additional EUR 13 billion of non-eligible mobilisable liquid assets, i.e. EUR 90 billion of liquidity reserves.

Lastly, the medium/long-term issuance programme in respect of 2011 (EUR 26 billion) was finalised during Q3. During the quarter, the Group raised EUR 4.1 billion with an average maturity of 5.6 years and an average spread of 100 basis points above the swap. Given the current initiatives aimed at reducing the Group's refinancing needs, notably in US dollars, the medium/long-term issuance programme for 2012 is set at between EUR 10 and 15 billion or half the figure for 2011.

The Group is rated Aa3 by Moody's and A+ by S&P and Fitch.

  1. FrENCH NETWORKS 

Q3 11 saw a further increase in the results of the French Networks (Societe Generale, Crédit du Nord, Boursorama) on the back of good commercial performances.

The customer franchise continued to grow, with +53,600 net account openings, due to a commercial policy targeting customer satisfaction. The French Networks are focusing on the "welcome" provided to customers via "new generation" branches and the development of 200 business centres dedicated to SMEs to accompany the new "SME Customer Services Charter".

The French Networks' outstanding deposits increased +5.4%(a) vs. Q3 10 on the back of the targeted commercial policy implemented in this area. The structure of this growth was positive since it was more significant on regulated savings schemes (épargne à régime special) excluding PEL plans (+13.1%(a) vs. Q3 10) and sight deposits (+5.4%(a) vs. Q3 10).

The Group's commitment to financing the French economy remained strong: outstanding loans increased +3.1%(a) overall vs. Q3 10 to EUR 171.1 billion, driven by new investment loan business.
There was a significant rise in outstanding housing loans (+7.3%(a) vs. Q3 10) on the back of EUR 4.2 billion of new housing loan business, sustained by the dynamic sales teams.

The French Networks' loan/deposit ratio fell -4 points year-on-year to 126% in Q3 11 (vs. 130% in Q3 10).

In an environment of declining equity indices for nine months, the strong volatility of financial markets during Q3 directly impacted the French Networks' life insurance investment activity, whose gross inflow shrank to EUR 2.0 billion in Q3 11. Outstandings rose +3.7%(a) vs. Q3 10 to EUR 79.8 billion.

The division's Q3 financial results represented a continuation of the good performances achieved over the last year. At EUR 2,035 million, revenues rose +4.3%(b) vs. Q3 10 (+1.4%(b) excluding SMC), driven by the growth in the interest margin (+4.8%(b) vs. Q3 10) and the positive trend in commissions (+3.6%(b) vs. Q3 10). The increase in operating expenses to EUR 1,273 million in Q3 11 vs.
EUR 1,199 million in Q3 10 (+6.2% vs. Q3 10) reflects the operating investments undertaken over the last two years.

The cost to income ratio stood at 62.9%(b)  in Q3 11.

Gross operating income came to EUR 762 million in Q3 11, up +1.2%(b) vs. Q3 10.

The French Networks' cost of risk amounted to EUR -169 million or 37 basis points in Q3 11
(vs. 46 bp in Q3 10 and 36 bp in Q2 11). This stability follows a year of decline, due notably to the improved cost of risk for business customers (SMEs and professionals).

The French Networks' contribution to Group net income totalled EUR 390 million in Q3, up +14.7% year-on-year.

Net banking income came to EUR 6,111 million for the first nine months of the year, up +5.1%(b)
vs. 9M 10. Operating expenses were 5.7% higher than for 9M 10. The cost to income ratio stood at 64.0%(b), a slight increase of +0.3 points vs. 9M 10.

The French Networks' contribution to Group net income totalled EUR 1,126 million for the first nine months of the year (+20.9% vs. 9M 10).

  1. InternationaL RETAIL BANKING 

Present in countries with solid fundamentals, International Retail Banking once again demonstrated the robustness of its business model and continued to improve its performances. The Q3 results  amounted to EUR 216(a) million (+14.3%(a) vs. Q3 10) excluding Greece, where the NPL coverage ratio for the Geniki subsidiary was increased.

Q3 was marked by International Retail Banking's commercial momentum, with overall year-on-year growth in outstanding loans of +6.7%* (+2.2%* quarter-on-quarter) and outstanding deposits of +5.5%* (+3.6%* quarter-on-quarter) to respectively EUR 66.7 billion and EUR 67.8 billion at
end-September. The loan/deposit ratio stood at 98%.

The customer franchise of subsidiaries in the Mediterranean Basin continued to expand at a buoyant rate during Q3, as testified by the growth in outstanding deposits of +7.1%* year-on-year, with a pick-up in Q3 (+3.5%* vs. Q2 11). Loans also increased (+14.6%* vs. Q3 10). With 38 new branches in the region and approximately 2.3 million customers, including more than 200,000 new customers year-on-year, there was a further strengthening of the commercial infrastructure. This healthy momentum resulted in a 3.1%* increase in net banking income year-on-year, reflecting initially the slowdown observed during the political events at the beginning of the year and subsequently the gradual normalisation during the summer.

The legal merger of the Rosbank and BSGV subsidiaries in Russia was finalised at the beginning of July 2011. The new universal bank continued to adapt and optimise its operating model thanks primarily to a new single information system. Outstanding deposits enjoyed strong growth in Q3 (+17.2%* vs. Q2 11). The retail banking activity continued to expand, particularly in the case of the individual customers portfolio (with the number of customers increasing +6.7%* vs. Q3 10 and +6.3%* vs. Q2 11) whose outstanding loans continued to grow (+13.8%* vs. Q3 10 and +7.7%* vs. Q2 11). All in all, Russia's loan and deposit growth amounted to respectively +7.0%* and +18.3%* year-on-year.

Q3 was marked by the renewed strong momentum in the other Central and Eastern European countries, except for Greece, still in a challenging situation, and Romania whose economic recovery is slower than expected.
In the Czech Republic, Komercni Banka posted good commercial performances, both for loans (+9.6%* vs. Q3 10) and deposits (+4.0%* vs. Q3 10). Growth was especially significant in the individual customers segment, with approximately 10,000 new customers quarter-on-quarter and outstanding loans and deposits up respectively +11.1%* and +4.6%* year-on-year.
In Romania, the loan approval policy remains selective. Outstandings continued to decline slightly
(-1.1%* year-on-year). That said, deposits rose +5.0%* over the period, driven by the corporate segment (+6.4%* vs. Q3 10).

(a) Excluding the contribution to Group net income of the Greek subsidiary, Geniki

In Greece, in an ongoing environment of economic and sovereign debt crisis, the strict management principles implemented by the Group for several quarters have been maintained. Specific commercial initiatives have been introduced aimed at limiting the decline in deposits and are supplemented by a very restrictive loan distribution policy for all customer segments. In Q3 11, the decline in loans and deposits was respectively -15.6%* and -25.5%* vs. Q3 10.

After a marked recovery in commercial activity in Q2 11, the situation is returning to normal in Sub-Saharan Africa and French overseas territories, where there was more moderate growth in loans and deposits in Q3 11 (+0.5%* and +1.3%* vs. Q2 11).

At EUR 1,229 million, International Retail Banking revenues were slightly lower (-2.3%* vs. Q3 10 or
-1.7% in absolute terms and -2.0%* vs. Q2 11).

International Retail Banking's operating expenses totalled EUR 731 million, up +5.1%* (+5.2% in absolute terms) vs. Q3 10 and down -2.5%* vs. Q2 11. In particular, Russian operating expenses rose +13.9%* vs. Q3 10 primarily due to still high inflation and merger-related investments.

Gross operating income totalled EUR 498 million. The cost to income ratio was 59.5% vs. 59.8% in
Q2 11.

If the Greek subsidiary Geniki is stripped out, International Retail Banking's cost of risk was lower at 81 bp in Q3 11 (vs. 100 bp in Q2 11 and 129 bp in Q3 10). Q3 saw a significant improvement in Russia and the Czech Republic, whereas there was a specific deterioration in Romania's net cost of risk following the reassessment of collateral, leading to an increase in the coverage ratio to 42%
(vs. 39% in Q2 11).

International Retail Banking's contribution to Group net income totalled EUR 90 million in Q3 11.

Net banking income came to EUR 3,678 million for the first nine months of the year, stable vs. 9M 10. Operating expenses for the period increased +7.5%* (+8.3% in absolute terms). The cost to income ratio stood at 60.4% for 9M 11 vs. 55.9% for 9M 10. International Retail Banking's 9-month contribution to Group net income totalled EUR 250 million vs. EUR 388 million for 9M 10.

  1. CORPORATE AND INVESTMENT BANKING 

Uncertainty over the global economy increased during Q3, primarily due to the sovereign debt crisis in Europe. This resulted in plummeting markets, substantial volatility and sharply widening credit spreads. Against this backdrop, the Group strengthened its prudent policy in terms of market risk exposure. The resilience of equity derivative and structured financing activities, where Corporate and Investment Banking has leadership positions, helped limit the decline in its revenues. The revenue decline was comparable to the decline experienced in the industry despite SG CIB's greater exposure to the European market, the hardest hit by the crisis. Accordingly, net banking income totalled
EUR 1,210 million in Q3 11 (including EUR -37 million for legacy assets), down -36.0%* vs. Q3 10 and
-34.0% vs. Q2 11.

Market Activities posted revenues of EUR 631 million, down -50.0%* (-51.3% in absolute terms vs. Q3 10). The business line reduced its risk profile in very volatile markets during Q3 (average VaR down 15% vs. Q2 11) and at the same time the refinancing needs associated with its activity, particularly in USD.

In an environment marked by plummeting market indices, declining dividend expectations as well as a sharp rise in volatility and correlation, Equity activities demonstrated their resilience, generating net banking income of EUR 472 million, down -26.0% vs. Q3 10 (at current exchange rates). SG CIB maintained its leadership position in equity derivatives, receiving the titles "Most innovative Investment Bank for Retail Equity Derivatives" (The Banker, October 2011) and "Global Provider in Equity Derivatives" (Risk Magazine Interdealer Rankings, October 2011).

Faced with an adverse environment, Fixed Income, Currencies & Commodities' performance was sharply lower, especially for credit: revenues fell -75.9% vs. Q3 10 to EUR 159 million, after a loss of EUR -87 million related to GIIPS sovereign debt risks. However, client-driven volumes for flow interest rate and currency activities and commodity derivatives increased. SG CIB also received the following awards: "E-FX Initiative of the Year" for the Alpha FX platform (FX Week, August 2011); "Innovation of the Year" for a deal based on the bank's proprietary commodity alpha strategy - SGI Smart Market Neutral Commodity Index (SGI SMN) (Energy Risk Asia, September 2011).

Meanwhile Financing & Advisory maintained a high revenue level, albeit 13.2%* lower than in Q3 10 at EUR 616 million. The main contributors to these results were natural resources financing, as well as infrastructure and export financing in Europe. As lead manager in charge of structuring, bookrunner and rate risk hedging provider, SG CIB concluded a EUR 1,047 million financing facility in favour of Global Tech 1 Offshore Wind Gmbh for the construction and operation of an offshore wind farm in the North Sea, off the German coast. This is the biggest project financing facility of this type ever implemented.

However, capital market activities were hit by weak issuance volumes and the postponement of numerous equity issuances in Europe due to market volatility. SG CIB nevertheless acted as lead manager and associate bookrunner in the biggest IPO of the year in Poland (JSW, for USD 1.9 billion). For the first nine months of 2011, SG CIB was ranked No. 1 project financing bookrunner for the Europe, Middle East and Africa region and No. 1 bookrunner for equity and convertible bond issuances in France (source: Thomson Reuters).

Legacy assets contributed EUR -37 million to revenues in Q3 11. SG CIB has accelerated the reduction of its exposure through assets since the beginning of July. The amount disposed of totalled EUR 10 billion in nominal terms (excluding amortisation) at November 1st. The disposals were carried out at limited cost to the Bank (EUR -45 million in Q3 11, EUR -76 million in October). For Q3 11 alone, the reduction in the portfolio amounted to EUR 6.7 billion (EUR 5.8 billion of disposals and
EUR 0.8 billion of amortisations).
Legacy asset revenues totalled EUR 48 million for the first nine months vs. EUR -42 million for 9M 10, with a portfolio reduced by EUR 15 billion since the beginning of the year.

Corporate and Investment Banking's Q3 operating expenses totalled EUR 971 million, down -13.6%* vs. Q3 10. Operating expenses amounted to EUR 3,449 million in the first nine months of 2011, up +3.6%* year-on-year. SG CIB's cost to income ratio stood at 64.8%.

Corporate and Investment Banking's core activities posted a slightly higher cost of risk at EUR -70 million, equivalent to 25 bp (vs. 0 bp in Q2 11 and 12 bp in Q1 11) due to increased portfolio-based provisions. Legacy assets' cost of risk was EUR -118 million (vs. EUR -130 million in Q2 11).

Corporate and Investment Banking's operating income totalled EUR 51 million in Q3 11 (vs. EUR 652 million in Q3 10). The contribution to Group net income was EUR 77 million (vs. EUR 468 million in
Q3 10 and EUR 449 million in Q2 11).

The contribution to Group net income was EUR 1,117 million for the first nine months of the year
vs. EUR 1,419 million for 9M 10.

  1. SPECIALISED FINANCIAL SERVICES AND INSURANCE 

The Specialised Financial Services and Insurance division comprises:

  1. Insurance (Life, Personal Protection, Property and Casualty). 

  2. Specialised Financial Services (operational vehicle leasing and fleet management, equipment finance, consumer finance). 

Specialised Financial Services and Insurance posted Q3 revenues of EUR 850 million, up +2.6%* vs. Q3 10.

Overall and in a restrictive liquidity and capital environment, Specialised Financial Services succeeded in stabilising its outstandings, continued to optimise its resources and developed access to refinancing sources outside the Group.

ALD Automotive (operational vehicle leasing and fleet management) once again enjoyed an excellent commercial momentum, with new business up +15.9%(1) vs. Q3 10. At end-September, ALD managed a fleet of 898,000 vehicles (+9.1%(1) vs. end-September 2010).

With EUR 1.9 billion of new business (excluding factoring), Equipment Finance remained on a positive trend (+4.6%* vs. Q3 10). Outstandings totalled EUR 18.0 billion at end-September (excluding factoring), down -3.9%* vs. Q3 10 and stable(1) vs. Q2 11.

Consumer finance continued on the recovery path in Q3. New business was slightly lower at EUR 2.5 billion (-2.5%* vs. Q3 10). Consumer finance outstandings amounted to EUR 22.3 billion at end-September 2011 and remained stable* year-on-year.

Specialised Financial Services' net banking income amounted to EUR 700 million in Q3, stable* vs. Q3 10. Operating expenses totalled EUR 391 million, up +5.9%* vs. Q3 10. The division's net banking income for the first nine months of the year was EUR 2,146 million (+1.3%* vs. 9M 10) and operating expenses totalled EUR 1,206 million (+10.6%* vs. 9M 10). As a result, gross operating income came to EUR 940 million, down -8.5%* vs. 9M 10.

Specialised Financial Services' cost of risk continued to improve in Q3 11 to 137 basis points
(i.e. EUR -189 million) vs. 221 basis points in Q3 10, a decline of -84 points.

Over the period, Insurance revenues increased +19.0%* to EUR 150 million (vs. EUR 126 million in Q3 10). They amounted to EUR 448 million for the first nine months of the year, substantially higher (+17.3%*)  than for  9M 10.

In an unfavourable environment for savings activities, gross life insurance inflow totalled EUR 1.8 billion, down -31.9%* vs. Q3 10. Although negatively impacted by a higher level of redemptions, the decline in net inflow was nevertheless limited at EUR -0.3 billion. Driven by the expansion of activities outside France, notably in Russia, and the ongoing internalisation of insurance products for borrowers in France, personal protection insurance premiums rose +24.7%* year-on-year.

Specialised Financial Services and Insurance's contribution to Group net income amounted to
EUR -53 million in Q3 11 vs. EUR 87 million in Q3 10, given a EUR -200 million goodwill impairment recognised during the consolidation of consumer finance subsidiaries. If the impairment is stripped out, the division's contribution to Group net income was EUR 147 million, up +70.0% year-on-year.

Operating income came to EUR 602 million for the first nine months (+62.6%* vs. 9M 10). The contribution to Group net income, excluding the goodwill impairment, amounted to EUR 424 million (+70.3% vs. 9M 10).

  1. PRIVATE BANKING, GLOBAL INVESTMENT MANAGEMENT AND SERVICES  

The division consists of three activities:
 (i)  Private Banking (Societe Generale Private Banking)
(ii)  Asset Management (Amundi, TCW)
(iii) Societe Generale Securities Services (SGSS) and Brokers (Newedge).

Private Banking, Global Investment Management and Services' Q3 results proved resilient in unfavourable market conditions.

Private Banking saw its revenues fall -6.4% in Q3 11 vs. Q3 10, to EUR 190 million. At EUR 83.6 billion at end-September 2011, the level of assets under management was 2% higher than at
end-September 2010 (EUR 82.0 billion) despite the recent plunge in the markets.

Asset Management, Securities Services and the Broker (Newedge) businesses were sustained by a healthy commercial momentum. For the fourth quarter running, TCW posted positive inflow. Assets under custody rose +1% year-on-year.  Newedge's revenues were buoyed by market volatility in
Q3 11.

At EUR 542 million, Private Banking, Global Investment Management and Services' Q3 revenues were 3.7%* lower than in Q3 10 (-4.6% in absolute terms). Operating expenses declined
-2.4%* vs. Q3 10. The EUR 60 million contribution to Group net income in Q3 11 was down -25.0% year-on-year.

At EUR 1,669 million for the first nine months of the year, net banking income was flat vs. the previous year (+0.7%*). Operating expenses were stable at EUR 1,469 million. The contribution to Group net income amounted to EUR 216 million vs. EUR 209 million on a cumulative basis at end-September 2010.

Private Banking

At EUR 83.6 billion, assets under management increased +2% vs. September 2010, but declined  by EUR 2.5 billion vs. end-June 2011. The decline includes an unfavourable "market" effect of EUR -3.4 billion, a EUR -0.6 billion outflow, and a positive "currency" impact of EUR 1.5 billion. The inflow since the beginning of the year remains high at EUR +3.3 billion.

At EUR 190 million, Private Banking's net banking income was down -6.4% vs. Q3 10, despite commissions holding up well and increasing 15.6%.

At EUR 158 million, operating expenses rose +5.3%* vs. Q3 10 mainly due to the increased headcount and projects. Q3 gross operating income came to EUR 32 million (-43.9%* vs. Q3 10). Private Banking's Q3 contribution to Group net income was EUR 28 million (vs. EUR 42 million in
Q3 10).

The business line's revenues for the first nine months of the year totalled EUR 604 million, sharply higher (+14.4%) year-on-year. Operating expenses amounted to EUR 468 million, up +10.6%*. Gross operating income came to EUR 136 million, up +13.3%* and +16.2% in absolute terms. The contribution to Group net income was EUR 102 million (+12.1%*).

Asset Management

Despite a challenging market in Q3 11, TCW posted positive quarterly net inflow (EUR 0.2 billion) for the fourth consecutive quarter, taking total inflow since the beginning of the year to EUR 1.6 billion.

Asset Management's contribution to Group net income totalled EUR 16 million vs. EUR 26 million in Q3 10. Amundi's Q3 contribution amounted to EUR 19 million (equity method).

For the first nine months of the year, Amundi's contribution took the contribution to Group net income to EUR 81 million vs. EUR 65 million in 2010.

Societe Generale Securities Services (SGSS) and Brokers (Newedge)

Securities Services provided further evidence of the healthy revenue momentum in Q3 11
(+11.5%* vs. Q3 10). Assets under custody rose slightly +1% year-on-year.

Newedge posted good results on the back of the market volatility during the quarter. Business volumes were up 11.3% vs. Q3 10. Newedge's net banking income rose +6.0%* vs. Q3 10. Costs were kept under control (-2.8%* vs. Q3 10).

SGSS and Newedge posted total net banking income up +9.0%* vs. Q3 10 at EUR 279 million. Operating expenses of EUR 250 million were 3.7%* higher than in Q3 10, reflecting the substantial investments within Securities Services.

Gross operating income amounted to EUR 29 million in Q3 11, up 93.3% vs. Q3 10.

The contribution to Group net income of the Securities Services and Broker activity totalled
EUR 16 million vs. EUR 12 million in Q3 10.

The business line's net banking income totalled EUR 823 million for the first nine months of the year, which was slightly higher (+2.0%*) year-on-year. Operating expenses were up 4.6%* at EUR 758 million. Gross operating income came to EUR 65 million vs. EUR 82 million at end-September 2010. The contribution to Group net income totalled EUR 33 million vs. EUR 55 million a year earlier.

  1. CORPORATE CENTRE 

The Corporate Centre's gross operating income was EUR 529 million in Q3 11 vs. EUR -270 million in Q3 10. It includes, in particular:

  • the revaluation of the Group's own financial liabilities, amounting to EUR +822 million in Q3
    (EUR 16 million in Q2 11). Own financial liabilities were revalued by referring to the Group's effective refinancing cost. The effect of the revaluation of own financial liabilities was EUR +476 million for 9M 11; 

  • the Group's industrial equity portfolio was the subject of a revaluation for EUR -57 million in Q3. 

  • the revaluation of credit derivative instruments used to hedge corporate loan portfolios, amounting to EUR +43 million (EUR -68 million in Q3 10). The cumulative effect for 9M 11 was EUR +38 million; 

  • the new so-called "systemic risk" banking taxes implemented in France and the UK, amounting to EUR -28 million, or an expected total amount for the year of EUR -100 million; 

  • the provision for the write-down of Greek government bonds held by the Group also reduced gross operating income by EUR -333 million, taking the total amount of write-downs recognised in 2011 on Greek government bonds to EUR -727 million. This amount will be reallocated to the divisions as soon as the exchange procedures provided for under the European agreements of July 21st and October 27th, 2011 have been decided.  

At September 30th, 2011, the IFRS net book value of the industrial equity portfolio amounted to
EUR 496 million, representing market value of EUR 567 million.

  1. CONCLUSION 

With Q3 Group net income of EUR 622 million, Societe Generale has demonstrated the resilience of its universal banking model even in a very turbulent environment.

Q3 saw an acceleration in the Group's adaptation to the radical changes in its environment, as testified by the initiatives to reduce the size of its balance sheet and its liquidity needs, and to adjust its risk profile.

Pending the implementation of recent political decisions to resolve the sovereign debt crisis, the Group has already included a 60% impairment loss vs. the nominal value on its Greek government bonds in its results. It has also reduced its exposure to the sovereign debt of other GIIPS countries, taking its residual exposure to a particularly low level of around EUR 3.4 billion.

The fundamentals of the Group's core businesses remain sound. They demonstrated their ability to withstand the current challenging environment during the first nine months of the year.

Despite this exceptional environment and the non-recurring items that affected its Q3 results, the Group has continued to strengthen its capital and improve its Core Tier 1 ratio since the beginning of the year thanks to a very rigorous capital, asset and risk management policy.

Giving priority to the strengthening of the Group's capital, Societe Generale's Board of Directors decided not to propose paying a dividend in respect of the 2011 financial year. This resulted in a Core Tier 1 ratio of 9.5% at end-September 2011. On this basis, Societe Generale is confident of being able to cover (by June 30th, 2012) the need to raise additional capital of EUR 2.1 billion (based on data at September 30th, 2011) in order to satisfy EBA requirements through its own resources, without having to make a call on public funds or the market. This will enable it to meet the EBA's prudential requirements by mid-2012, which represents an important step in the process of achieving a Basel 3 Core Tier 1 ratio well above 9% by end-2013.

2012 financial communication calendar

February 16th 2012   Publication of fourth quarter and FY 2011 results
May 3rd 2012   Publication of first quarter 2012 results
May 22nd 2012   Annual General Meeting
August 1st 2012   Publication of second quarter 2012 results
November 8th 2012   Publication of third quarter 2012 results


This document may contain a number of forecasts and comments relating to the targets and strategies of the Societe Generale Group. These forecasts are based on a series of assumptions, both general and specific (notably  - unless specified otherwise - the application of accounting principles and methods in accordance with IFRS as adopted in the European Union as well as the application of existing prudential regulations).
This information was developed from scenarios based on a number of economic assumptions for a given competitive and regulatory environment. The Group may be unable to:
- anticipate all the risks, uncertainties or other factors likely to affect its business and to appraise their potential impact on its operations;
- precisely evaluate the extent to which the occurrence of a risk or combination of risks could cause actual results to differ materially from those contemplated in this press release.
There is a risk that these projections will not be met. Investors are advised to take into account factors of uncertainty and risk likely to impact the operations of the Group when basing their investment decisions on information provided in this document.
Unless otherwise specified, the sources for the rankings are internal.

 
 APPENDIX 1: FIGURES AND QUARTERLY RESULTS BY CORE BUSINESS

CONSOLIDated balance sheet

quarterly results by core businesses

 
 Appendix 2: méthodology

1- The Group's Q3 consolidated results as at September 30th, 2011 were examined by the Board of Directors on November 7th, 2011.

The financial information presented for the nine-month period ended September 30th, 2011 has been prepared in accordance with IFRS as adopted in the European Union and applicable at that date. This financial information does not constitute a set of financial statements for an interim period as defined by IAS 34 "Interim Financial Reporting". Societe Generale's management intends to publish full consolidated financial statements in respect of the 2011 financial year.

2- Group ROE is calculated on the basis of average Group shareholders' equity under IFRS excluding
(i) unrealised or deferred capital gains or losses booked directly under shareholders' equity excluding conversion reserves, (ii) deeply subordinated notes, (iii) undated subordinated notes recognised as shareholders' equity, and deducting (iv) interest to be paid to holders of deeply subordinated notes and of the restated, undated subordinated notes. The net income used to calculate ROE excludes interest, net of tax impact, to be paid to holders of deeply subordinated notes for the period and, since 2006, holders of deeply subordinated notes and restated, undated subordinated notes (EUR 81 million in Q3 11 and EUR 243 million for 9M 11).

3- For the calculation of earnings per share, "Group net income for the period" is corrected (reduced in the case of a profit and increased in the case of a loss) for interest, net of tax impact, to be paid to holders of:
(i)         deeply subordinated notes (EUR 75 million in Q3 11 and EUR 225 million for 9M 11),
(ii)         undated subordinated notes recognised as shareholders' equity (EUR 6 million in Q3 11 and EUR 18 million for 9M 11).

Earnings per share is therefore calculated as the ratio of corrected Group net income for the period to the average number of ordinary shares outstanding, excluding own shares and treasury shares but including (a) trading shares held by the Group and (b) shares held under the liquidity contract.

4- Net assets are comprised of Group shareholders' equity, excluding (i) deeply subordinated notes
(EUR 6.3 billion), undated subordinated notes previously recognised as debt (EUR 0.9 billion) and (ii) interest to be paid to holders of deeply subordinated notes and undated subordinated notes, but reinstating the book value of trading shares held by the Group and shares held under the liquidity contract. The number of shares used to calculate book value per share is the number of shares issued at September 30th, 2011 (including preference shares), excluding own shares and treasury shares but including (a) trading shares held by the Group and (b) shares held under the liquidity contract.

5 - The Societe Generale Group's Core Tier 1 capital is defined as Tier 1 capital minus the outstandings of hybrid instruments eligible for Tier 1 and a share of Basel 2 deductions. This share corresponds to the ratio between core Tier 1 capital excluding hybrid instruments eligible for Tier 1 capital and Core Tier 1 capital.

Information on the 2011 financial year results is also available on Societe Generale's website www.societegenerale.com in the "Investor" section.

Societe Generale

Societe Generale is one of the largest European financial services groups. Based on a diversified universal banking model, the Group combines financial solidity with a strategy of sustainable growth, and aims to be the reference for relationship banking, recognised on its markets, close to clients, chosen for the quality and commitment of its teams.

Its 157,000 employees* based in 85 countries accompany more than 33 million clients throughout the world on a daily basis. Societe Generale' teams offer advice and services to individual, corporate and institutional customers in three core businesses:

  • Retail banking in France with the Societe Generale branch network, Crédit du Nord and Boursorama 

  • International retail banking, with a presence in Central and Eastern Europe and Russia, the Mediterranean Basin, Sub-Saharan Africa, Asia and French Overseas Territories 

  • Corporate and investment banking with a global expertise in investment banking, financing and market activities.  

Societe Generale is also a significant player in specialised financial services, insurance, private banking, asset management and securities services.

Societe Generale is included in the international socially-responsible investment indices: FTSE4good and ASPI. www.societegenerale.com
* including employees of Société Marseillaise de Crédit acquired in September 2010 by Crédit du Nord

[1]**) Excluding litigation issues, legacy assets in respect of assets at the beginning of the period, and Greek government bond write-down. Annualised.
[2] The interest net of tax effect to be paid at end-September 2011 amounts to EUR 225 million for holders of deeply subordinated notes and EUR 18 million for holders of undated subordinated notes.

[1] This figure includes notably (i) EUR 6.2 billion of deeply subordinated notes, EUR 0.8 billion of undated subordinated notes and (ii) EUR -0.10 billion of net unrealised capital losses
2 Excluding floor effect, -21 bp on Tier 1
(a) Excluding SMC
(b) Excluding PEL/CEL
(b) Excluding PEL/CEL
(1) When adjusted for changes in Group structure




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(ii) they are solely responsible for the content, accuracy and originality of the
information contained therein.

Source: SOCIETE GENERALE via Thomson Reuters ONE

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