SocGen plans car-leasing IPO as earnings surpass estimates

Bloomberg

Societe Generale SA reported fourth-quarter profit that exceeded estimates, helped by a surprise jump in earnings from French consumer banking. The lender announced plans for an initial public offering of its car-leasing business.
Net income was 390 million euros ($417 million), down 41 percent from a year earlier but above the 315 million-euro average estimate of seven analysts surveyed by Bloomberg. Costs including a charge tied to the sale of a Croatian unit weighed on the results.
European lenders have struggled to increase profit amid record-low interest rates, tepid economic growth and tougher capital rules. In the final three months of 2016, Societe Generale benefited from lower provisions for bad loans, improved trading conditions and better results from Russia and Africa. The lender said it will raise its dividend 10 percent to 2.20 euros a share.
“SocGen should perform well on the back of those results,” Jefferies analysts led by Maxence Le Gouvello said in a note titled “Firing All Cylinders.” The “beat comes across all divisions with positive” cost control, they wrote.
Societe Generale’s stock rose 1.8 percent to 43.48 euros at 11:20 a.m. in Paris trading, after earlier climbing as much as 4 percent. The shares have gained more than 50 percent over the past 12 months, valuing the company at 35 billion euros.
Auto-Leasing IPO
Societe Generale plans to offer shares in its wholly-owned ALD auto-leasing division this year, market conditions permitting, through the sale of a minority stake. ALD, which leases fleets of autos to corporations and other clients, has almost 1.4 million cars and operations in 41 countries, making it the largest in Europe, according to the bank.
The IPO will give ALD the opportunity “to seize potential growth or potential acquisitions,” Deputy CEO Severin Cabannes said in an interview on Bloomberg Television. “Societe Generale will remain the controlling shareholder and main funding provider of ALD.”
In the fourth quarter, profit at the French retail unit unexpectedly rose 25 percent to 402 million euros, helped by cost reductions and lower loan-loss provisions. The result surpassed the average estimate of 290 million euros in a survey of analysts by Bloomberg News.
Societe Generale announced at the end of 2015 an intention to cut 20 percent of its branches by 2020 while luring more clients to Boursorama, its online bank.
The results “reflect good commercial and operational performance in all the businesses and rigor in controlling costs and risks,” Chief Executive Officer Frederic Oudea, 53, said in the statement.

Trading Rebound
Interest rates will probably remain low in Europe this year and the European Central Bank will maintain its current policies as France, the Netherlands and Germany face elections, Cabannes said. At Societe Generale’s French consumer-banking unit, mortgage refinancing “will have an impact” in 2017, but probably less than last year, he said.
Net income from global banking and investor solutions, which includes trading and investment banking, rose 51 percent to 432 million euros, as the lender wrote back provisions it had set aside previously. Earnings beat the average estimate of analysts compiled by Bloomberg News. Equities trading revenue rose 13 percent to 509 million euros, topping estimates, while fixed-income sales climbed 6.8 percent to 551 million euros, missing estimates.
Wall Street firms saw a rebound in debt trading in the fourth quarter, driven by an increase in Treasury yields and client activity following the U.S. presidential election. The five largest U.S. investment banks recorded a 43 percent aggregate increase in fixed-income revenue in the period, according to Bloomberg Intelligence. BNP Paribas SA, France’s largest bank, had a 23 percent gain in bond-trading income.

‘Confident Message’
International retail banking and financial services posted a 50 percent increase in earnings, as Russia returned to profit and results at banking networks in Africa improved.
The bank’s return on equity was 7.8 percent for 2016, up from 7 percent the prior year. The dividend was 10 cents higher than analysts at Kepler Cheuvreux had estimated, and the bank said it aims to increase the payout going forward.
The dividend outlook was a “confident message” given that most analysts expected a dip in 2017, analysts at RBC Capital Markets led by Anke Reingen wrote in a note. The fourth-quarter “results were reassuring, coming in largely in line with expectations in the core divisions.”
Earnings in the quarter were squeezed by a 235 million-euro charge tied to the sale of Splitska Bank, a Croatian lender, and a 150 million-euro provision for unspecified legal risks. The bank also booked a 286 million-euro charge related to a review of deferred-tax assets.
Societe Generale will continue to seek “bolt-on” acquisitions in businesses such as private banking, Oudea said at a press briefing. Over the next three to four years, consolidation in the European banking industry will most likely happen within national borders, he said.