UPDATE 4-Societe Generale profit more than doubles as trading surges

Thu Aug 1, 2013 10:35am EDT

* Earnings and revenue beat analyst forecasts

* Fixed income, equities trading performance beats peers

* Shares soar more than 12 pct, dividend payout seen rising

* Sticks to goals, international retail arm turns a profit

* Books third litigation provision in as many quarters

By Lionel Laurent and Matthias Blamont

PARIS, Aug 1 (Reuters) - Societe Generale, France's No. 2 listed bank, said second-quarter earnings more than doubled after a surge in securities trading and a swing to profit at its foreign retail arm defied Europe's economic slump.

The figures offset investor concerns over SocGen's lagging capital-adequacy ratios, which are gradually being topped up while rivals Barclays and Deutsche Bank take more radical steps such as raising equity or pruning assets.

SocGen shares jumped more than 12 percent to a six-month high of 34.04 euros, to be the top gainer on the FTSEurofirst blue-chip index. The results far exceeded expectations, a day after rival BNP Paribas also beat forecasts, and paved the way for a higher dividend.

"These first-half results are very encouraging for us... We are on track," said SocGen Chief Executive Frederic Oudea. He told analysts that this year's dividend payout ratio was seen at 25 percent but was likely to rise to 35-50 percent in 2014.

Quarterly net income soared to 955 million euros ($1.27 billion) from 436 million in the year-ago period, while revenue slipped 0.6 percent to 6.23 billion, the bank said on Thursday.

Both figures were ahead of analysts' estimates, according to analysts polled by Thomson Reuters I/B/E/S, with the average forecast for net profit at 703 million euros and 5.88 billion for revenue.

Within the investment bank, SocGen's fixed-income unit saw 17.2 percent growth year-on-year, outperforming U.S. heavyweights such as Goldman Sachs and Morgan Stanley - up 11 percent and 16 percent respectively - while larger rivals such as Germany's Deutsche and BNP saw declines.

At its equities arm, SocGen sales rose 38.3 percent year-on-year, again better than European peers including BNP, Credit Suisse and Barclays, though slightly short of the 40-50 percent gains posted by several Wall Street firms.

Total investment-banking profits almost tripled to 374 million euros, helped also by the sale of a chunk of bad debt.

"Corporate and investment banking ... was over 20 percent above consensus, with stronger-than-expected equities revenues," Citigroup analyst Kinner Lakhani wrote in a note to clients.

"Although leverage concerns are unlikely to have been fully addressed... We reiterate our Buy rating."

CAPITAL PROGRESS

As with BNP Paribas, SocGen is in the early stages of a multi-year cost-cutting programme intended to fight the euro zone's economic woes without a more radical restructuring.

It stuck to its 2015 return-on-equity target of 10 percent and said its Basel III core capital ratio had risen to 9.4 percent - almost six months ahead of schedule.

SocGen's Basel III leverage ratio - which lags the sector - will exceed by year-end the 3 percent required by regulators by 2018, it said. Regulators are increasing scrutiny of leverage ratios, which compare a bank's shareholder equity to its total assets without using a bank's own risk weightings.

CEO Oudea said the bank would keep bolstering its balance sheet but ruled out any capital increase or asset-sale drive, saying the combination of its own earnings power and a slew of cost-cutting initiatives would be enough.

"We are going to continue to generate capital organically to meet regulations," he told reporters, though he went on to say that the leverage ratio - which European banks argue favour the U.S. banks - should not be used as a regulatory "backbone" for judging banks' capital strength.

"We should push for regulation that encourages bank managers to look at the risk they take in the balance sheet... As a backbone of regulation I think (the leverage ratio) would be a catastrophe," he said.

GAINS ABROAD, DECLINES AT HOME

A turnaround at its foreign retail operations, heavily skewed towards Russia and Eastern Europe, which swung to profit due to falling loan losses and restructuring measures.

The division reported profit of 59 million euros versus a 231 million-euro loss in the year-ago period.

Russian unit Rosbank - which was rocked by the arrest of its chief executive on bribery charges in May - has a new CEO and will try to boost profits, SocGen said, in a fragmented, state-dominated market that for years has failed to deliver meaningful profits for SocGen and that has chased out many rivals.

However, SocGen's domestic retail operations, once a reliable profit driver thanks to French households' low debt levels, saw profits fall 11.4 percent as the weak economy pushed up loan-loss provisions, eating into stronger revenue.

SocGen also booked its third litigation provision in as many quarters, setting aside 100 million euros for unspecified "dispute" risks.