November 3, 2017 / 5:55 AM / 17 days ago

SocGen income hit by trading, raises litigation reserve

PARIS (Reuters) - Societe Generale (SOGN.PA) missed third-quarter income forecasts on Friday and raised reserves for litigation costs by 300 million euros ($350 million), knocking the French bank’s shares.

Investors are concerned that pending legal disputes, for which SocGen has set aside 2.2 billion euros, could hurt its dividend payouts. The bank said it should resolve two legal disputes with U.S. authorities within the coming months.

The French bank, which is seeking to reassure the market before its medium-term strategy presentation on Nov. 28, reported a 15 percent fall in third-quarter net income to 932 million euros, below analysts’ estimates of 1 billion euros, according to a Reuters poll.

“De facto, we are capable of preserving a good level of dividend, regardless of litigation,” the bank’s chief executive Frederic Oudea told journalists on a call.

Oudea added that its target for the investor day was to present a plan that would deliver a level of profitability that covers the cost of capital.

Like other European banks, the quarterly result was weighed down by a slump in fixed income and equities trading.

SocGen shares were down 3.5 percent to 46.15 euros at 0851 GMT, underperforming both France's benchmark CAC-40 index .FCHI and the STOXX Europe 600 Banking index .SX7P.

FILE PHOTO: A view shows the logo on the headquarters of French bank Societe Generale at the financial and business district of La Defense near Paris, France, September 6, 2017. REUTERS/Gonzalo Fuentes/File Photo

The bank said it was in talks with U.S. authorities over two investigations, the first concerning the Libyan Investment Authority (LIA) and the other over interest rate benchmarks.

In May, SocGen reached an 11th-hour settlement over LIA allegations that trades were secured as part of a “fraudulent and corrupt scheme” involving the payment of $58.5 million by SocGen to a Panamanian-registered company.

But the two disputes may not mark the end of SocGen’s legal problems, with the bank still in talks with U.S. authorities over dollar transfers it made on behalf of entities based in countries subject to economic sanctions.

RESULTS BELOW ESTIMATES

Profits are being squeezed by revenue pressure in French retail banking, due to low interest rates, investments in digital technologies and a slump in trading.

Revenue at SocGen’s investment banking arm slumped 15 percent, mirroring results at other banks including French rival BNP Paribas (BNPP.PA).

SocGen’s fixed income trading revenue fell 27.8 percent, this compared with a 26 percent drop at BNP Paribas and more than 30 percent fall at others, such as Deutsche Bank (DBKGn.DE).

The bank also underperformed rivals in equities and prime services trading, which fell 19.3 percent.

Reporting by Maya Nikolaeva; Editing by Sudip Kar-Gupta and Alexander Smith

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