PARIS French bank Societe Generale (SOGN.PA) failed to convince investors a surprise surge in first-quarter bond, currency and commodities trading revenue was not a one-off.
Like European peers, France's second-biggest lender is slashing costs, debt and jobs at its key investment banking division to meet tougher global bank capital rules and better resist the fallout from the euro zone's sovereign debt crisis.
Citing a rebound in financial markets in the first three months of the year, SocGen Chief Executive Frederic Oudea said the bank's strong start to the year gave him confidence in the future despite a "morose" economic outlook.
Although investors praised the performance of SocGen's underlying operations in the quarter and a 39-percent jump in fixed-income revenue, some cast doubt on the sustainability of these trends in a slowing European economy.
"We're going to want to see confirmation this is sustainable," said Marco Bruzzo, head of fund manager Mirabaud Gestion AM.
SocGen shares were down 3.8 percent to 17.34 euros at 1358 GMT (9.58 am EDT), the second-worst performer in an otherwise flat STOXX Europe 600 bank index .SX7P.
The stock earlier gained as much as 4.8 percent but turned south after European Central Bank President Mario Draghi warned of growth risks to the eurozone.
SocGen and larger rival BNP Paribas (BNPP.PA), which have been cutting exposure to the 17-nation eurozone while lending more at home, are treated as proxies for the euro, and their share prices have suffered as market fears intensify over Spain's recession-wracked economy.
And with investors' focus shifting to Sunday's presidential election in France, political uncertainty remains an issue given the sickly economy there and pledges from Socialist frontrunner Francois Hollande to crack down on banks' risky activities.
"Clearly we're seeing the political impact here ahead of the second-round presidential vote," said Yohan Salleron, fund manager at Mandarine Gestion. "It's wait-and-see mode."
SocGen posted a 20 percent drop in first-quarter net income to 732 million euros ($963 million). Analysts had forecast 748.1 million, according to a Thomson Reuters I/B/E/S average of seven estimates. Revenue fell a less-than-expected 4.7 percent to 6.3 billion euros.
Although the push to sell assets and strengthen capital hurt profit, analysts noted strong underlying operations such as a 39 percent jump in fixed-income revenue - defying expectations of a drop-off from its strong performance a year ago.
Quarterly growth in fixed-income, currencies and commodities (FICC) outpaced even traditional heavyweights such as Germany's Deutsche Bank (DBKGn.DE) and Britain's Barclays (BARC.L). SocGen cited strength in client demand and the bank's own trading.
BNP Paribas reports results on Friday. Analysts said these would likely show similar underlying trends to SocGen's, given BNP's leading position in euro-denominated bond issuance.
Citing a rebound in financial markets between January and March - driven by the ECB's unprecedented injection of cheap funds into the banking system - SocGen's Oudea told CNBC there had been no marked deterioration since.
SocGen sold 6.4 billion euros of loan assets in the first quarter to cut debt which came at a cost but boosted its core European Banking Authority Tier 1 capital ratio - a key metric of banks' ability to withstand losses - to 9.4 percent.
Profit at the corporate and investment bank fell 41 percent to 351 million euros, with corporate finance and advisory suffering from losses on asset sales and a drop in activity.
CEO Oudea, who took the top job following a 2008 rogue trader scandal that almost brought SocGen to its knees, has promised to reach an even stricter Basel III Tier 1 ratio of 9 to 9.5 percent by 2013 without raising additional capital.
He had harsh words for Jerome Kerviel, the trader who is appealing against a three-year jail sentence for his role in the scandal, saying he was indulging in a "media offensive" and that SocGen was confident in the outcome of the upcoming appeal.
Since the 2008 financial crisis, SocGen has benefited from its 3,250-plus retail branches in France that balance out its exposure to long-running turmoil on financial markets.
But with the French economy slowing and unemployment at a 12-year high, the outlook for domestic retail is darkening. Quarterly profits fell year on year for the first time since 2010 at the unit.
($1 = 0.7603 euros)
(Additional reporting by Christian Plumb; Editing by James Regan and David Hulmes)