SocGen 2Q Earnings Rise Helped By Lower Bad Debt Provision
01 Août 2014 - 5:31PM
Dow Jones News
By Noemie Bisserbe
PARIS-French bank Societe Generale SA reported a rise in
second-quarter net profit Friday, helped by lower provisions
against bad loans, and despite a weak Russian business hurt by the
sluggish local economy.
The Paris-based lender, France's third-largest listed bank by
assets, said second-quarter net profit increased by 7.8% to 1.03
billion euros ($1.34 billion) from EUR955 million a year
earlier.
Bad debt provisions, which exclude money the bank sets aside
against possible litigation liabilities, fell by 22.6% to EUR752
million compared with EUR985 million in the same period last
year.
The bank's global banking and investor solutions division, which
includes its corporate and investment bank, asset management,
private banking and its securities services businesses, posted a
28% jump in net profit to €585 million. Revenues were up just 2.4%
but the bottom line was boosted by a net bad debt provision
write-back of EUR28 million.
In Russia, however, net profit dropped by 36% to EUR16 million from
EUR25 million a year ago, as a weak ruble and a weakening economy
continued to take its toll.
While Russia currently accounts for only about 5% of the group's
total revenue, Societe Generale once had big ambitions in the
country, betting that local lender Rosbank would help drive growth
as Europe struggled to pull itself out of the financial crisis.
The French bank bought a 20% stake in Rosbank for $634 million in
2006. Since then it has spent over EUR4 billion building a 99.4%
stake, integrating its back-office and technology platforms,
shaking up management and cutting more than 2,500 jobs.
Societe Generale cautioned that sanctions against Russia, even
though they don't directly target Rosbank, could hamper revenue
going forward.
"Possible consequences could be a loss of earnings if certain
transactions can't go through," deputy chief executive Bernardo
Sanchez Incera told reporters on a conference call, adding,
however, that he didn't see any short-term impact for the bank.
The U.S. and the European Union this week adopted sweeping economic
sanctions against Russia to punish Moscow's unbending stance in
Ukraine conflict. EU governments agreed on trade and investment
restrictions against Russia's banks, oil industry and military
aimed at increasing financial strains in its already sluggish
economy.
Societe Generale has also set aside an additional EUR200 million to
cover potential litigation risks but didn't give any details on the
provision. This took the total provision for litigation risk to
EUR900 million.
The bank is currently conducting an internal review into potential
U.S. sanctions breaches. It has also received formal requests for
information as part of global probes into alleged attempts to
manipulate benchmark interest rates.
Three years of restructuring has helped the bank significantly
improve its financial strength and set aside enough capital to
absorb any potential future losses.
Societe Generale's core tier one ratio, which compares top-quality
capital such as equity and retained earnings with risk-weighted
assets, stood at 10.2% at the end of June, above the 8% minimum
required by regulators by 2019.
Its leverage ratio, which measures capital against total assets,
was 3.6%, higher than the 3% threshold set for 2018.
French retail banking net profit was up 2% at EUR336 million, while
net profit for its international retail network rose 31% to EUR318
million.
Societe Generale's overall revenue fell 3.7% to EUR5.89 billion
from EUR6.12 billion in the same quarter last year.
French rival BNP Paribas SA on Thursday reported a EUR4.32 billion
second-quarter loss after it agreed to pay a nearly $9 billion fine
and plead guilty to violating U.S. sanctions against Sudan, Iran
and other countries.
Write to Noemie Bisserbe at noemie.bisserbe@wsj.com
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