SocGen profits tumble 42%

Société Générale wrote down the value of subsidiaries in the US and Russia, dragging down net profits at the French bank 42 per cent in the second quarter.

SocGen, France’s second-largest bank by market value, reported net profit of €433m, well below analysts’ expectation of profits of €700m.But SocGen said it was on track to meet increased capital requirements demanded by regulators.

Frédéric Oudéa, chairman and chief executive, also said that the bank had launched an internal inquiry to see whether any of its traders had manipulated interbank lending rates and said it was co-operating with regulators’ inquiries into the scandal.

“To date, we have not received any notice of wrongdoing,” from regulators, he said.

It emerged on Wednesday that a private investor in SocGen had launched a legal complaint against an unnamed party – in line with French legal practice – alleging market manipulation and insider dealing by a panel of banks with relation to the setting of Libor and Euribor.

Frédérik-Karel Canoy, the investor’s lawyer, condemned the French regulatory authorities for failing to launch an inquiry into the affair, along the lines of that conducted in the UK.

In February, SocGen listed among its risk factors in its annual report, enquiries by regulators in Europe and the US into the London interbank offered rate and Euribor, its European equivalent. The scandal has already felled top managers at Barclays in the UK.

Of the €476m of impairments and losses, €250m stemmed from a goodwill writedown on Rosbank, the Russian bank, and €200m from a similar writedown on TCW, the group’s California asset manager.

There were also high bad-loan provisions made for the Romanian business while regarding Geniki, its Greek retail unit, SocGen said it was open to “all possibilities”.

Mr Oudéa would not confirm reports that TCW is in the final stages of a sale conducted by Morgan Stanley with Carlyle, the private equity group, a likely buyer. “We do not comment on sales until they have been made,” said Mr Oudéa.

The biggest contributor to net profits was domestic retail banking, which generated 83 per cent of the bank’s gains due to a still-resilient French economy.

Net profit in the investment bank fell by 71 per cent to €131m, after slightly weaker than expected capital markets revenues. Analysts at Citi said: “SocGen has completed its restructuring plan with the full benefits of cost reduction expected in the second half of 2012.”

The bank said that it would meet its target of a Basel III core tier one ratio – a key balance sheet measure – of 9-9.5 per cent by the end of 2013.

International retail banking and the private banking and asset management businesses fell into loss, mainly as a result of the writedowns.

SocGen also took a hit from selling assets at 5 per cent below book value, as it sought to reduce the size of its balance sheet to boost capital.

The shares closed up slightly at €18.11.

Source: By Scheherazade Daneshkhu in Paris FT.com