February 16, 2011, 4:26 AM EST
By Fabio Benedetti-Valentini
(Adds deputy CEO comment in 16th paragraph.)
Feb. 16 (Bloomberg) -- Societe Generale SA, France’s second-largest lender, said fourth-quarter profit quadrupled, helped by a turnaround at its Russian unit and on fewer writedowns at the corporate and investment bank.
Societe Generale, based in Paris, rose as much as 4.2 percent after saying today that net income climbed to 874 million euros ($1.18 billion) from 221 million euros a year earlier, That beat the 865 million-euro average estimate of 12 analysts surveyed by Bloomberg.
Chief Executive Officer Frederic Oudea is counting on the revival of earnings at the Russian retail unit, which has been unprofitable since at least 2009, to help the bank reach a goal of 6 billion euros of annual profit by 2012. That plan is being buoyed as the company posts lower writedowns after recording losses of more than 11 billion euros during the credit crisis.
“SocGen hasn’t disappointed and it’s a cheap share,” said Simon Maughan, the co-head of European equities at London-based MF Global Ltd. “It’s a leading indicator for all of the banking industry.”
Societe Generale rose as much as 2.04 euros to 50.90 euros, its highest price in a year, and traded at 50.88 euros at 9:57 a.m. in Paris trading. That gives the bank a market value of 37.6 billion euros.
The company in 2010 “embarked on a far-reaching transformation of the group,” Oudea, 47, said in a statement. “We are determined to continue” with the plan and meet next year’s profit target, he said. Full-year earnings surged almost sixfold to 3.92 billion euros.
Writedowns
The lender had gross losses of 164 million euros in the quarter from risky assets including asset-backed securities and debt backed by U.S. bond insurers, down from about 1.6 billion euros a year earlier, according to company data. For the full year, the bank booked 625 million euros in writedowns and provisions for risky assets, less than its forecast of as little as 700 million euros.
The Russian consumer-banking business had a 13 million-euro profit in the quarter compared with a loss of 58 million euros a year earlier, according to a presentation on the bank’s website. Russia, the lender’s second-largest market by employees, should become the biggest contributor to international-retail earnings in 2015, it said on June 15.
Societe Generale plans to pay a 2010 dividend of 1.75 euros a share compared with 25 cents a year earlier. The company reiterated it doesn’t need to sell new shares to comply with new capital requirements as the bank can reach a core Tier 1 ratio, a key measure of financial strength, of about 8.5 percent at the end of 2013.
Share Rally
The Russian turnaround and the drop in writedowns are helping the company, which had a record trading loss in 2008 from unauthorized bets by Jerome Kerviel, regain favor with investors as it narrows the earnings gap with larger French competitor BNP Paribas SA.
Societe Generale, whose shares trailed those of BNP Paribas every year from the start of the credit crisis in 2007 through 2010, has gained 45 percent since June 15, when Oudea announced the 2012 profit target. That’s more than the 23 percent advance of BNP Paribas, which is slated to report earnings tomorrow.
BNP Paribas’s market value, at about 70 billion euros, is 85 percent larger than Societe Generale’s. In May 2007, before the financial crisis took hold, the gap was as small as 12 percent.
Risky Assets
That comes as investors bet Oudea’s plan to balance earnings from corporate- and investment-banking with higher revenue from consumer lending in countries such as Russia will pay off.
The corporate- and investment-banking unit had a 311 million-euro fourth-quarter profit compared with a 562 million- euro deficit last year as Societe Generale trimmed losses from risky assets it’s winding down.
Corporate- and investment-banking revenue more than doubled to 2 billion euros, beating analysts’ estimates of 1.84 billion euros. Societe Generale had said it expected the unit to have about 2 billion euros of quarterly revenue last year.
Sales at the capital-markets division rose 20 percent to 1.14 billion euros in the fourth quarter. The markets business had a “rather good” start in 2011, Deputy Chief Executive Officer Severin Cabannes said in an interview with Bloomberg Television.
French Boost
Profit at the French retail networks rose 53 percent to 302 million euros, in line with analysts’ estimates for 306 million euros. Societe Generale posted a profit of 94 million euros from its insurance and financial-services division from a loss of 37 million euros a year earlier.
Overall earnings at the bank’s international-retail networks gained 4 percent to 104 million euros, helped by the Russian business returning to profit, while the Romanian and Greek subsidiaries “suffered the effects of the recession,” Societe Generale said.
The company last year probably made more than a quarter of its total revenue from emerging countries, mostly in central and eastern Europe, where economic growth is higher than in France, Keefe, Bruyette & Woods Ltd. analyst Jean Pierre Lambert said in a note to investors last month. That compares with 15 percent at BNP Paribas and 9 percent at Credit Agricole SA, France’s third- biggest lender, according to KBW.
Egyptian Business
The French lender, owner of Egypt’s second-largest listed bank, has probably the most at risk among European banks in the Arab world’s most populous country, analysts and economists have said. The Egyptian army said this week it will rule for six months or until general elections are held after a popular uprising led to the toppling of President Hosni Mubarak’s 30- year-old-long regime.
Overall, French banks have the most at stake among international lenders in Northern Africa.
They had a combined $52.3 billion of loans in Algeria, Egypt, Libya, Morocco and Tunisia at the end of September, according to data from the Bank for International Settlements. That’s 65 percent of the total claims European banks have on borrowers from these five countries.
Even so, French banks’ exposure to Northern Africa is smaller than the $59.4 billion on Greece, where both Societe Generale and Credit Agricole operate unprofitable consumer- banking networks.
Societe Generale owns 88 percent of Greece’s Geniki Bank SA, which has been unprofitable each year since 2003. The French lender posted a loss of 66 million euros in the fourth quarter for the Greek business, compared with a 26 million-euro deficit a year earlier.
Societe Generale had a combined net risk of 9.3 billion euros tied to the sovereign debt of Greece, Ireland, Italy, Portugal and Spain at the end of December.
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