* 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 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
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."
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
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