Societe Generale SA reported an unexpected increase in first-quarter profit, boosted by consumer banking, and announced plans to deepen cost cuts at its investment bank. The shares jumped.
Net income rose to 924 million euros ($1.06 billion) from 868 million euros a year earlier, the Paris-based bank said on Wednesday. That beat the 765 million-euro average estimate of six analysts in a Bloomberg survey. Societe Generale booked a 218 million-euro gain after the European Union antitrust regulator slashed a 2013 penalty for rigging interest rates.
Societe Generale may struggle to meet its profitability target for this year as volatile markets, tougher capital requirements and losses at its Russia business undermine earnings. While the French lender has avoided eliminating thousands of jobs at its securities unit, Chief Executive Officer Frederic Oudea deepened cost cuts at the business, bringing savings across the bank to 2 billion euros under a five-year transformation plan.
â€œThe start of the year was very awkward with fears on the economy, on the oil price, on China, etc,â€ Oudea, 52, told Caroline Connan in an interview on Bloomberg Television. â€œThe end of the first quarter was better â€” we can expect something a bit more volatile. That wonâ€™t prevent us from developing our model, transforming the model further.â€
The shares rose 2.8 percent to 33.76 euros in Paris, capping three days of declines. They have dropped about 20 percent this year, while French rival BNP Paribas SA decreased 12 percent.
Franceâ€™s second-largest bank by market value has already signaled that it may fail to reach its target of boosting the return on equity – a measure of profitability – to 10 percent this year from 7.1 percent in the first quarter. Oudea said in the interview on Wednesday that â€œitâ€™s too early to sayâ€ whether it will meet the objective.
â€œWith this kind of environment, with a Russia business which will reduce losses but wonâ€™t deliver what we expected three years ago,â€ we â€œcanâ€™t guarantee this kind of return,â€ he said. â€œBut we keep this kind of objective in mind going
forward.â€ However the French
consumer-banking profit climbed 18 percent as the unit set aside less money for bad loans, while earnings at the international retail-banking and financial-services division doubled. That helped cushion a 15 percent decline in profit at the global banking and investor solutions unit, which houses the investment bank.
In Russia, one of Societe Generaleâ€™s key markets outside of France, the loss narrowed to 18 million euros in the first quarter from 89 million euros.
Oudea said in the interview that while the situation at the unit is gradually â€œstabilising,â€ it will probably post a loss of between 50
million euros and 100 million euros this year.
At the global markets business, led by Frank Drouet, revenue fell 13 percent to 1.55 billion euros in the first quarter, hurt by a 37 percent slump in equities trading.
Revenue from fixed income, currencies and commodities climbed 17 percent, while prime services increased 11 percent.
Societe Generale SA is a French multinational banking and financial services company headquartered in Paris. The company is a universal bank and has divisions supporting French networks and global transaction banking.