August 3, 2011 / 10:30 AM / 8 years ago

UPDATE 5-SocGen warns on 2012 profit as Greece scars Q2

* 6 bln eur profit target for 2012 seen hard to reach

* Q2 profit falls to 747 mln eur, misses expectations

* Takes 395 mln euro hit from Greece exposure

* Revenue down from year ago as private banking drags

* Shares fall 8.5 pct to 2-year low

(Adds quotes, detail)

By Sarah White

PARIS, Aug 3 (Reuters) - French bank Societe Generale showed the scars of its share of a Greek bailout in its second quarter results, helping to push its 2012 profit goal out of reach.

France’s second-biggest bank said its aim of 6 billion euros ($8.55 billion) in net profit in 2012, reiterated as recently as May this year, would now be “difficult to achieve” because of a tougher economic and financial backdrop.

SocGen, whose investment bank struggled in some areas, took a 395 million euro pretax hit on its exposure to Greece because of its contribution to a bailout plan.

SocGen’s shares were down 8.5 percent at 29.7 euros by 1345 GMT, after tumbling to a two-year low of 29.52 euros. It was the worst performer in a slightly weaker European bank index after results undershot analysts’ forecasts.

The 6 billion euro ambition had long been doubted by analysts, who were forecasting a profit of 5.3 billion euros for that year, according to Thomson Reuters I/B/E/S Estimates.

“The company finally admitted that it would not meet targets set out in its 2015 plan,” a Paris-based trader said. “Analysts didn’t believe they would meet the target, but the fact that they were flatly dropped without being revised or tweaked is clearly negative.”

The volte-face came as economic concerns in the eurozone and the United States worsen, rattling global markets.

Chief Executive Frederic Oudea pointed to its corporate and investment banking performance as one of the main drags on profit goals as economic fears unnerved investors.

“The generation of revenues in CIB will be weaker than expected,” he told journalists.

“I don’t want to put my traders under pressure ... to take stupid credit risks to reach a number,” he added.

Some of the bank’s core investment banking businesses disappointed in the second quarter, including equities trading, where revenues fell 30 percent from the first quarter. They were close to flat at French rival BNP Paribas .

Weak revenues in fixed income, currency and commodities, a sore point for most rivals in the second quarter, also overshadowed a more resilient performance in other parts of the investment bank.

A feeble three months for asset management also pushed revenues and profits below analysts’ expectations, even as retail banking held up relatively well, with revenues in France and abroad growing.

Oudea defended the bank’s performance as “solid”, given the tough environment, and said he remained “confident regarding the continuing growth of our results”.


SocGen found the hit from Greece harder to absorb than some rivals, although Credit Agricole also warned last week its Greek unit, Emporiki CBGr.AT, would make a loss and said it would take an 850 million euro hit from Greece in the second quarter.

Private sector investors have agreed to take a 21 percent loss on their Greek sovereign bonds maturing before 2020.

BNP Paribas on Tuesday said its charge would be 534 million euro, but its net income, still held flat from a year ago.

SocGen’s second-quarter net income fell 31 percent from a year ago to 747 million euros, well below the 1.15 billion euro average forecast from analysts.

“The results are below consensus, even without the Greek provision,” said Alex Koagne, financial analyst at Natixis.

The Greece charge affects the entire 2.6 billion euros in the country’s sovereign debt held by SocGen, meaning it can now put the pain of the bailout behind it.

But its Greek unit Geniki GHBr.AT now plans to raise extra capital by the end of the year, SocGen said.

Oudea firmly rejected any move by the parent bank to raise its capital, however, even as some analysts continue to doubt its ability to meet stricter capital requirements under Basel III.

SocGen said its core Tier 1 ratio improved to 9.3 percent at the end of June.

“This appears robust, but on a like-for-like basis with peer banks, then SocGen has a Basel III ratio more like 7.2 percent by our analysis,” said Joseph Dickerson, analyst at Espirito Santo.

That would leave it short of its expected minimum level of 9 percent under new global rules, and could leave an equity deficit of nearly 8 billion euros, he said.

Return on equity at SocGen, a key measure of profitability, fell to 6.9 percent after tax, down from 10.9 percent a year ago. But Oudea said it would reach 12 to 15 percent after 2012. ($1=.7017 Euro)

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