Societe Generale 2Q net profit down by half

[August 05, 2009]  PARIS (AP) -- Societe Generale SA said Wednesday its net profit fell 52 percent in the second quarter as the French bank wrote down its derivatives holdings and suffered increased losses on bad loans.

France's second largest bank reported net profit of euro309 million ($445 million) for the three months ended June 30, down from euro644 million a year earlier. Revenue rose 2.4 percent to euro5.72 billion.

The Paris-based bank's earnings were hit by a total of euro1.7 billion of what it called "non-recurring items," which included new writedowns on the value of credit default swaps it carries on its books to hedge its loans, as well as provisions for loan losses.

A credit default swap is derivative that insures the holder of a loan or security against default. The bank uses them to hedge its corporate loan portfolio, and their value has shrunk as credit spreads have tightened, the bank said.

The results were above the euro57 million forecast by analysts, and in line with the bank's guidance of "slightly positive" earnings for the quarter. Societe Generale shares were up 5.6 percent at euro49.01 as investors looked past the writedowns to a positive performance by the bank's corporate and investment division. It made a relatively small loss of euro12 million due to writedowns but revenue doubled to euro1.29 billion.

Pascal Decque, a banking analyst at Paris' Natixis bank, said that leaving aside the "mechanical accounting" loss from the swaps writedowns, Societe Generale's underlying performance was satisfactory in the quarter. "The corporate and investment banking division was even quite good," Decque said.

The results were less successful than those for Societe Generale's big domestic rival, BNP Paribas, which Tuesday reported a quarterly profit of euro1.6 billion on stronger investment banking.

The bank took a total of euro3.6 billion in writedowns for loan loss provisions and the shrinking value of its swaps in the first half, leaving its net profit for the six months ended June 30 at euro31 million, compared to euro1.74 billion in the same period a year earlier.

In a statement, Societe Generale Chairman Frederic Oudea said the bank "is focusing on consolidating its market share, controlling risks and restructuring the activities most severely affected by the crisis in order to adapt to the new environment and prepare for the future."

The bank's Tier One ratio, seen as a key measure of a bank's financial health, improved to 9.5 percent at the end of June, up from 9.2 percent at the end of March. The improvement was partly due to the bank's decision to not buy back any of its own shares during the second quarter and hold onto its capital.

Societe Generale stock rose 32 percent in the second quarter, and is up 8 percent so far this year.

Last month the bank had warned that its second quarter earnings would be hit by a euro1.3 billion writedown from credit default swaps and debt instruments. The global financial crisis has led to major losses on risky securities at banks worldwide.

The French retail banking business, Societe Generale's main cash spinner, reported falling profits in the second quarter. The bank blamed the "challenging" economic enviroment of global recession, high corporate bankruptcies and rapidly rising unemployment.

Societe Generale struggled to return to profitability last year after losing billions of euros in a massive trading scandal, and reported a net loss of euro278 million in the first quarter this year after devaluation of assets linked to U.S. real estate.

During the quarter Societe Generale lost its long-time chairman, Daniel Bouton, who resigned in the aftermath of the scandal around trades by Jerome Kerviel. A decision on whether to try Kerviel is in the hands of investigating magistrates. Bouton quit in May, saying repeated attacks on him were threatening the bank's health.

Bouton was Societe Generale's chief executive in January 2008 when the bank announced one of the world's largest trading scandals, which caused a massive loss. He stepped down as CEO last May but had remained as chairman. Current chief executive Frederic Oudea took on the chairman's role as well after Bouton's resignation.

[Associated Press; By GREG KELLER]

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