The FINANCIAL — Societe Generale’s Board of Directors, which met on August 1st, 2017 under the chairmanship of Lorenzo Bini Smaghi, examined the results for H1 and Q2 2017.
Book Group net income amou nted to EUR 1,058 million in Q2 2017 (EUR 1,461 million in Q2 2016) and EUR 1,805 million in H1 2017 (EUR 2,385 million in H1 2016).
These results include non-eco nomic items and exceptional items whose im pact on the different components of the results is de tailed in note 5. When corrected for these item s and the additional charge in respect of the linearisation of the impact of IFRIC 21, underlying Group net income totalled EUR 1,165 million in Q2 2017, up +11.0% vs. Q2 2016. Underlying Group net income was up +32.6% at EUR 2,551 million in H1 2017 (EUR 1,924 million in H1 2016), as was underlying ROE (9.5% in H1 2017 vs. 7.5% in H1 2016).
The Societe Generale Group delivered a good performance in all its busi nesses in Q2 2017. International Retail Banking & Financial Services enjoyed strong revenue growth (NBI up +6.2% vs. Q2 2016), whereas French R etail Banking, still adversely affected by th e low interest rate environment, saw a moderate decline (-1.8% excluding PEL/CEL provision vs. Q2 2016) and Global Banking & Investor Solutions a limited decline of -4.3% vs. Q2 2016 which be nefited from a more favourable market environment than in Q2 2017.
Book net banking income totalled EUR 5,199 million in Q2 2017 (EUR 6,984 million in Q2 2016) and EUR 11,673 million in H1 2017 (EUR 13,159 million in H1 2016). Underlying net banking income amounted to EUR 6,389 million in Q2 2017 (down -1.3% vs. Q2 2016) and EUR 12,841 million in H1 2017 (up +2.7% vs. H1 2016) .
Operating expenses were up +1.2% in Q2 2017, reflecting on the one hand, the acceleration of investments in the transformation of French Retail Banking and efforts to support the rapid growth of International Retail Banking & Financial Services and, on the other, the effects of Global Banking & Investor Solutions’ cost savings plans. Underlying operating expenses incre ased in a controlled manner to EUR -8,500 million in H1 2017 (up +1.7% vs. H1 2016).
The net cost of risk (excluding net change in the provision for disputes) was at the low level of EUR -191 million in Q2 2017, a substantial decline vs. Q2 2016 (EUR -464 million). The commercial cost of risk stood at the very low level of 15 basis points in Q2 2017 (38 basis points in Q2 2016). The provision for disputes was the s ubject of a net write-back in the income stateme nt of EUR 450 million consisting of a write-back of EUR 750 million intended to cover, in Group net income, the impact of the LIA settlement, and an additional allocation of EUR 300 million, according to the Societe Generale Group.
The Common Equity Tier 1 (fully-loaded CET1) ratio was 11.7% at June 30th, 2017 (11.6% at March 31st, 2017). It includes, in partic ular, the impact of operations to optimise the portfolio (primarily the stock market floatation of ALD, disposal of Splitska Banka and acquisition of 50% of the capital of Antarius) and a provision for divi dend of EUR 1.10 per share.
Earnings Per Share, excluding non-economic items, amounts to EUR 2.12 at end-June 2017 (EUR 2.77 at end-June 2016).
Commenting on the Group’s res ults for H1 2017, Frédéric Oudéa –Chief Executi ve Officer – stated:
“In a mixed economic and fin ancial environment, Soc iete Generale poste d sound Q2 results, confirming the good commer cial and operating performances achieved b y the businesses at the beginning of the year and the relevance of its diversified and integrated banking model. The Group’s revenues were driven in particular by the growth in Internation al Retail Banking & Financial Services, while profitability increased due to cost and risk cont rol. The Group also continued to optimise its portf olio of activities with, in particular, the acquisition of 50% of the capital of Antarius and the stock market floatation of ALD.
Societe Generale is actively p reparing the next stage of its strategy which will be presented in November, based on the G roup’s new governance, both more agile and closer to our customers, implemented as fr om September.”
Net banking income
The Group’s book net banking income totalled EUR 5,199 million in Q2 17 ( EUR 6,984 million in Q2 16) and EUR 11,673 million in H1 17 (EUR 13,159 million in H1 16).
Underlying net banking income was slightly lower (-1.3%) at EUR 6,389 million in Q2 2017. It amounted to EUR 12,841 million in H1 17 (EUR 12,500 million in H1 16).
Net banking income for the businesses was stable at EUR 6,392 million in Q2 17 (EUR 6,426 million in Q2 16).
-French Retail Banking’s net banking income was slightly lower (-1.8% excluding PEL/CEL
provision) in Q2 17 than in Q2 16. This trend reflects the decline in net interest income (-6.6% vs. Q2 16), still advers ely affected by a low interest rate environment, and the continued increase in commissions illustrating the gradual transition to a more fee-generating model (+5.0% vs. Q2 16).
-International Retail Ban king & Financial Services’ net banking inco me increased +6.2% (+5.5%) in Q2 17, dri ven by the growth of activities in all businesses and geographical regions. In Q2 17, International Retail Banking revenues climbed +5.1% (+7.1%) underpinned by a strong commercial momentum, Insurance revenues rose +4.9% a nd Financial Services to Corporates’ revenues were slightly higher (+1.5%).
-Global Banking & Investor Solutions’ revenues were down -4.3% in Q2 17 vs. Q2 16, which represented a high comparison base. Global Markets and Investor Serv ices declined -3.1%, with a contrasting trend between Fixed Income, Currencies & Commodities adversely affected by an unfavourable environment (-6.8% vs. Q2 16) and Equity activitie s which proved more resilient (-3.3% vs. Q2 16). Financing & Advisory revenues declined compared to the high level in Q2 2016. In Asset and Wealth Management, net banking inco me rose +5.5% due primarily to the healthy growth of Lyxor’s assets under management.
The accounting impact of the re valuation of the Group’s own financial liabilities was EUR -224 million in Q2 17 (EUR -212 million in Q 2 16). The DVA impact was EUR -3 million in Q2 17 (EUR 1 million in Q2 16). These two factors constitute the restated non-economic items in the an alyses of the Group’s results.
Net banking income also include s the impact of the LIA settlement for EUR -963 million in Q2 17 and the impact of the sale of Visa sh ares for EUR +725 million in Q2 16.
Operating expenses
The Group’s operating expenses amounted to EUR -4,169 million in Q2 17, up +1.2% (+1.5%) vs. Q2 16. They include a EUR 60 million restructuring provision write-back. After reintegrating the impact related to the smoothing of IFRIC 21 charges, the increase was +1.5%.
Underlying operating expenses totalled EUR -8,500 million in H1 17 vs. EUR -8,360 million in H1 16, representing a controlled increase of 1.7%.
The increase reflects the acceleration of investments in the transformation of French Retail Banking, efforts to support the growth of International Retail Banking & Financial Service s, and the benefits of the structural transformation of Global Banking & Investor Solutions’ business model related to the cost savings plans implemented.
Gross operating income
The Group’s book gross operating income totalled EUR 1,030 million in Q2 17 ( EUR 2,865 million in Q2 16) and EUR 2,860 million in H1 17 (EUR 4,756 million in H1 16).
Underlying gross operating income amounted to EUR 2,075 million in Q2 17 (EUR 2,220 million in Q2 16) and EUR 4,341 million in H1 17 (EUR 4,140 million in H1 16).
Cost of risk
The Group’s net cost of risk wa s positive (EUR +259 million) in Q2 17, due prim arily to the net write- back in respect of the provision for disputes amounting to EUR +450 million (allocation of EUR 300 million offset by a write-back o f EUR 750 million covering the net effect of the LIA settlement). Excluding this item, the net cos t of risk was EUR -191 million in Q2 17, down -58.7% vs. Q2 16, confirming the structural improvement in the risk profile of the three business divis ions.
The commercial cost of risk (ex pressed as a fraction of outstanding loans) continued to decline, to a very low level of 15 basis points in Q2 17 (vs. 38 basis points in Q2 16). It was lower in all the businesses:
-In French Retail Banking , the commercial cost of risk was 29 basis points in Q2 17 (33 basis points in Q2 16).
-International Retail Banking & Financial Services’ cost of risk continued to decline, to 14 basis points in Q2 17 vs. 64 basis points in Q2 16. This effect can be attribut ed in particular to the low level of impairments and major provision write-backs in Romania.
-Global Banking & Investor Solutions’ cost of risk was at a very low level of 1 basis point in Q2 17 (29 basis points in Q2 16).
The Group’s commercial cost of risk is expected to be around 25 basis points at e nd-2017.
The gross doubtful outstandings ratio declined to 4.6% at end-June 2017 (vs. 5.1 % at end-June 2016). The Group’s gross coverage ratio for doubtful outstandings stood at 62%, a decrease vs. March 31st 2017.
Operating income
Book Group operating income t otalled EUR 1,289 million in Q2 17 (EUR 2,201 million in Q2 16) and EUR 2,492 million in H1 17 (EUR 3,568 million in H1 16).
Underlying operating income am ounted to EUR 1,884 million in Q2 17 (EUR 1, 756 million in Q2 16) and EUR 3,873 million in H1 17, up +22.9% vs. H1 16.
Net profits or losses from othe r assets
Net profits or losses from other assets amounted to EUR 208 million in Q2 17 (EUR 245 million in H1 17) and include principally the capital gain, related to the change in cons olidation method for Antarius, recognised at the time of Sogécap’s acquisition of 50% of the capital for EUR 203 million.
Net income
Book Group net income totalled EUR 1,058 million in Q2 17 (EUR 1,461 million in Q2 16) and EUR 1,805 million in H1 17 (EUR 2,385 million in H1 16).
Underlying Group net income increased +11.0% to EUR 1,165 million in Q2 17 ( EUR 1,050 million in Q2 16) and +32.6% to EUR 2,551 million in H1 17 (EUR 1,924 million in H1 16).
Underlying ROE was 8.7% in Q2 17 (7.8% in absolute terms) vs. 8.2% in Q2 16 (11.7% in absolute terms). It amounted to 9.5% in H1 17 vs. 7.5% in H1 16.
Earnings per share amounts to EUR 1.94 in H1 17 (EUR 2.71 in H1 16). When adjusted for non- economic items, EPS is EUR 2.1 2 in H1 17 (EUR 2.77 in H1 16).
Group shareholders’ equity t otalled EUR 60.1 billion at June 30th, 2017 (EUR 62.0 billion at December 31st, 2016). Net ass et value per share was EUR 61.9, including EUR 1.37 of unrealised capital gains. Tangible net asset value per share was EUR 55.7.
The consolidated balance sheet totalled EUR 1,350 billion at June 30th, 2017 (EUR 1,382 billion at December 31st, 2016). The net amount of customer loan outstandings, including lease financing, was EUR 400 billion at June 30th, 2017 (EUR 403 billion at December 31st, 2016) – excluding assets and securities sold under repurc hase agreements. At the same time, customer deposits amounted to EUR 393 billion, vs. EUR 397 b illion at December 31st, 2016 (excluding assets and securities sold under repurchase agreements).
At June 30th, 2017, the Group h ad issued EUR 18.4 billion of medium/long-term debt with EUR 16.7 billion at parent company lev el (representing the achievement of 69% of the 2017 financing programme of EUR 24 billion), having an average maturity of 5 years and an a verage spread of 27 basis points (vs. the 6-month m id-swap, excluding subordinated debt). The su bsidiaries had issued EUR 1.7 billion. The LCR (Liquid ity Coverage Ratio) was well above regulatory requirements at 123% at end-June 2017, vs. 142% at end-December 2016.
The Group’s risk-weighted ass ets (RWA) amounted to EUR 351.0 billion at June 30th, 2017 (vs. EUR 355.5 billion at end-Dece mber 2016) according to CRR/CRD4 rules. Risk-weighted assets in respect of credit risk represent 81.2% of the total, at EUR 285 billion, down -3.1% vs. December 31st, 2016.
At June 30th, 2017, the Group’s fully-loaded Common Equity Tier 1 ratio stood at 11.7%(1) (11.5% at end-December 2016), up +17 ba sis points vs. end-December 2016. The Tier 1 ra tio stood at 14.4%, a decline of -12 basis points, and the total capital ratio amounted to 17.7%, a decli ne of -19 basis points vs. end-December 2016 in conj unction with the early redemption of an additiona l Tier 1 capital issue replaced by a senior non-preferr ed debt issue.
With a level of 21.9% of RWA and 6.4% of leveraged exposure at end-June 201 7, the Group’s TLAC ratio is already above the FSB’s requirements for 2019.
The leverage ratio stood at 4. 2% at June 30th, 2017 (4.2% at end-December 2016, 4.1% at end- March 2017).
The Group is rated by the ratin g agencies DBRS (long-term rating: “A (high)” w ith a stable outlook; short-term rating: “R-1(middle)” and long-term Critical Obligations Rating of “AA” and short-term Critical Obligations Rating of “R -1(high)”), FitchRatings (long-term rating: “A” w ith a stable outlook; short-term rating: “F1” and long-term Derivative Counterparty Rating at “A(dcr)”), Moody’s (deposit and senior unsecured long-term ratin gs: “A2” with a stable outlook; short-term rating: “P-1” and long-term Counterparty Risk Assessment of “A1” and short-term Counterparty Risk A ssessment of “P-1”), Standard & Poor’s (long-term rating: “A” with a stable outlook; short-term rating: “A-1”) and R&I (long- term rating: “A” with a stable outl ook).
The healthy commercial momentum enjoyed by French Retail Banking at the beginning of 2017 continued in Q2 17 and was ac companied by resilient earnings in a low interest rate environment in H1 17.
Activity and net banking income
The client base of French Retail Banking’s three brands (Societe Generale, Crédit du Nord and Boursorama) continued to expan d in H1 17. In the individual customer segment, the division saw the number of customers increas e by 248,000 in Q2 17 (+2.2% vs. Q2 16) while Boursorama strengthened its position as the leading online bank in France, with more than 1.1 million customers at end-June 2017. In the business segment, the number of new relationships was v ery robust with more than 1,400 new customers in Q2 17 (+4.4% vs. Q2 16). They reflect the teams’ professionalism and relational qualities, as testified b y the results of the 2017 Competition Survey which show that 9 out of 10 business customers consider the Societe Generale teams to be “proficient and expert” according to the survey by the CSA(1). In ad dition, the customers of the main French banks rank Crédit du Nord joint No. 1 in terms of satisfactio n in the individual customer and business customer markets. Crédit du Nord is also ranked second in th e professional customer market.
There was a significant increase in French Retail Banking’s housing loan prod uction, up +41% vs. Q2 16 at EUR 6.0 billion in Q2 17. This good performance is only partially reflected in the growth in home loan outstandings (+2.3% in Q2 17) due primarily to the acceleration in the pace of prepayments and the natural pace of loan amortisations. There was a substantial increase in corporate investment loan production (+9.7% vs. Q2 16) to EUR 2.8 billion, while average outstandings rose +1.7%. Overall, average outstanding loans grew +1.2% vs. Q2 16 to EUR 185.1 billion.
Average outstanding balance sheet deposits came to EUR 196.2 billion at end-June 2017. They were up +7.5%, driven by the sharp ri se in sight deposits (+17.0%), particularly in the b usiness segment. As a result, the average loan/depos it ratio amounted to 94% at end-June 2017 (vs. 100% on average in 2016).
French Retail Banking’s growth drivers turned in robust performances with, n otably, a substantial increase in assets under management for Private Banking in France (+8.7% vs. Q2 16) and life insurance outstandings up +2% at EUR 91.9 billion.
This strong commercial momentum is partially reflected in French Retail Banking’s earnings which experienced the negative effects of the low interest rate environment and mortgage renegotiations.
After neutralising the impact of PEL/CEL provisions, net banking income was dow n -1.8% in Q2 17 vs. Q2 16 at EUR 2,049 million and -2.4% when adjusted for changes in Group structure (integration of Antarius and disposal of OnVist a). It came to EUR 4,107 million in H1 17, down -2.1% and -2.4% when adjusted for changes in Group structure vs. H1 16, in line with Group expe ctations of an erosion of around 3% to 3.5% over the year. Interest income declined -6.6% vs. Q2 16 (-6 .9% in H1 17) due to mortgage renegotiations and th e reinvestment of deposits at a lower rate. Commissions climbed +5.0% in Q2 17 (and +4.9% in H 1 17), reflecting the successful transition to a fe e-generating model.
There was a sharp increase in financial commissions (+26% in Q2 17 and +18 % in H1 17), due to dynamic brokerage and life insurance activity, particularly for unit-linked contracts. The increase also reflects the higher contribution from Antarius, after Societe Generale acquire d total control of the insurance company.
Operating expenses
French Retail Banking’s operating expenses came to EUR 1,389 million, up + 3.7% vs. Q2 16 (and +3.1% in H1 17 vs. H1 16, in line with Group expectations of an increase in operating expenses of +3% to +3.5% in 2017). The Group continued with its digital transformation and investments in fast- growing activities. As part of its transformation plan, the Group notably closed 4 4 branches in France in Q2 17 (and 65 in H1 17).
Operating income
The net cost of risk confirmed its downward trend (-22.6% vs. Q2 16 and -21.0% vs. H1 16) thanks to the quality of French Retail Banking’s portfolio. Operating income totalled EUR 533 million in Q2 17 (EUR 592 million in Q2 16) and EUR 983 million in H1 17 (EUR 1,071 million in H1 16).
Contribution to Group net income
French Retail Banking’s contribution to Group net income amounted to EUR 359 million in Q2 17 (EUR 403 million in Q2 16) and EUR 678 million in H1 17 (EUR 731 million in H1 16), testifying to the division’s resilient profitability in a low interest rate environment. RONE adjus ted for the IFRIC 21 charge stood at 12.6% in Q2 17 and 13.0% in H1 17.
The division’s net banking incom e totalled EUR 2,009 million in Q2 17, up +6.2% vs. Q2 16, driven by the substantial growth in activity in all regions and businesses. Operating expens es were slightly lower (-0.9%) over the period, but in clude a EUR 60 million restructuring provisio n write-back. If this provision write-back is stripped out, operating expenses were up +4.6%, in conjun ction with the growth of the businesses. Accordingly, g ross operating income totalled EUR 980 million in Q2 17 (+14.9% vs. Q2 16). The net cost of risk con tinued to improve, amounting to EUR 59 million (-69.1% vs. Q2 16), due to good risk management and the recovery of significant amounts in Ro mania. The division’s contribution to Group net income totalled EUR 568 million in Q2 17, up +30.3% vs . Q2 16.
Revenues amounted to EUR 3, 987 million EUR 1,583 million (+38.6% vs. H1 16) EUR 1.0 billion (+36.0%).
International Retail Banking
At end-June 2017, International Retail Banking’s outstanding loans had risen +5.7% (+8.1%) vs. Q2 16, to EUR 85.0 billion; the increase was particularly strong in Europe, espe cially in the individual customer segment. Deposit in flow remained high in virtually all the inte rnational operations; outstanding deposits totalled EUR 77.4 billion at end-June 2017, up +7.3% (10.3 %) year-on-year.
International Retail Banking ma de further progress in its financial performance, in line with previous quarters. Revenues were up +5.1% vs. Q2 16 (+7.1%), underpinned by the healthy commercial momentum, while the increase in operating expenses (+4.8%, +5.7%) reflects investments in fast- growing activities. Gross operating income came to EUR 546 million, up +5.6% (+8.9%) vs. Q2 16. International Retail Banking’s contribution to Group net income amounted to EUR 277 million in Q2 17 (+42.1% vs. Q2 16), due primarily to the sharp decline in the net cost of risk (-69. 8% vs. Q2 16).
International Retail Banking’s net banking income totalled EUR 2,584 million in H1 17, up +5.0% (+4.8%) vs. H1 16. The contri bution to Group net income came to EUR 471 million compared to EUR 317 million in H1 16 (+48.6%).
In Western Europe, outstanding loans were up +14.5% vs. Q2 16, at EUR 17.1 b illion, and resulted in revenue growth of +10.5%. Th e region’s net banking income totalled EUR 1 89 million and gross operating income EUR 99 million in Q2 17. The contribution to Group net income came to EUR 51 million, up +13.3% vs. Q 2 16.
In the Czech Republic, the G roup delivered another solid commercial perf ormance in Q2 17. Outstanding loans rose +12.2% (+8.4%), driven by home loans and consume r loans. Outstanding deposits climbed +15.8% (+11.8%) year-on-year. Revenues were stable (+0.0% , -1.8%) in Q2 17 at EUR 259 million, given the persistent low interest rate environment. Over the same period, operating expenses remained under contr ol at EUR 133 million (+2.3%, +0.2%). The cont ribution to Group net income, which amounted to EUR 57 million (+9.6% vs. Q2 16) benefited from a low net cost of risk.
In Romania, the franchise expa nded in a buoyant economic environment: outstanding loans grew +4.2% (+4.8%) and deposits climbed +6.1% (+6.8%). Outstanding loans tot alled EUR 6.6 billion, primarily on the back of the grow th in the individual customer and large corporat e segments. Deposits totalled EUR 9.4 billion. In this context, net banking income rose +1.5% (+2.7%) due mainly to a positive volume effect. Operating expenses were up +9.5% (+10.8%), given the change in recognition method in 2016 with regard to c ontributions to the local deposit guarantee fund. Concerning the net cost of risk, Q2 17 was marked by major provision write-backs which resulted in a positive net cost of risk of EUR 44 million. As a res ult, the BRD group’s contribution to Group net income was EUR 46 million; it was EUR 21 million in Q2 16.
In other European countries, outstanding loans were down -14.0% and deposits were down -17.5% vs. Q2 16, due to the disposal of Splitska Banka, the Group’s subsidiary in Croatia, concluded on May 2nd. When adjusted for changes in Group structure and at constant exchange rates, outstanding loans and outstanding deposits were up +10.1% and +9.6% respectively. In Q2 17, r evenues rose +6.9% when adjusted for changes in G roup structure and at constant exchange rates (-19.4% in absolute terms), while operating expenses were up +7.9% (-18.3% in absolute terms) in conjunction with the expansion of the business and the growth in volumes. The contribution to Group net income came to EUR 38 million (EUR 40 million in Q2 16), with the decline in the net cost of risk (-45.5%) largely offsetting the decline in gross operating income following the disposal of Splitska Banka.
In Russia, the economic environment continues to stabilise, consolidating the b usiness’ expansion in the individual customer segment. Outstanding loans were up +2.2% when adjusted for changes in Group structure and at consta nt exchange rates (+6.6% in absolute terms, due primarily to the rouble’s appreciation since Q2 16), driven both by corporate loans (+3.3%) an d loans to individual customers (+1.5%), with the car loan business being particularly dynamic. Outstanding deposits were substantially higher (+22.1% wh en adjusted for changes in Group structure and at constant exchange rates and +25.6% in absolute ter ms), both for individual and business customers. Net banking income for SG Russia(1) totalled EUR 2 09 million in Q2 17, up +4.7% when adjusted for changes in Group structure and at constant excha nge rates (+23.7% in absolute terms). Operating expenses remained under control at EUR 156 million, +3.3%* when adjusted for changes in Gr oup structure and at constant exchange rates (+22.1 % in absolute terms) and the net cost of risk was substantially lower at EUR 9 million (-83.8% vs. Q2 16). Overall, SG Russia made a positive contribution to Group net income of EUR 31 million in Q2 17 (corresponding to a RONE of 9% in Q2 17). SG Russia made a loss of EUR -12 million in Q2 16.
In Africa and other regions wh ere the Group operates, outstanding loans ros e +3.8% (+5.6% vs. Q2 16) to EUR 19.1 billion, with a healthy commercial momentum in the majority of African operations (outstanding loans in Africa up +4.1% or +6.4% when adjusted for changes in Group structure and at constant exchange rates), in conjunction with the dynamic economic growth in th e region. Outstanding deposits were up +4.6% (+6.3% ) at EUR 18.9 billion. Net banking income came to EUR 385 million in Q2 17, an increase vs. Q2 16 (+11.3%, +13.1%). Over the same period, ope rating expenses rose +8.9% (+10.8%), accompanying the Group’s commercial development. The contribution to Group net income came to EUR 64 million in Q2 17, up +6.7% vs. Q2 16.
Insurance
The life insurance savings busi ness benefited from a +3.1% increase in outst andings in Q2 17 vs. Q2 16, +17.0% with the integrati on of Antarius’ life insurance outstandings.
There was further growth in Personal Protection insurance (premiums up +10.9% vs. Q2 16). Likewise, Property/Casualty insurance continued to grow (premiums up +9.4 % vs. Q2 16), with substantial growth internationally (+22.9% vs. Q2 16), driven by car and home insurance.
The Insurance business turned in a good financial performance in Q2 17, with n et banking income up +12.7% vs. Q2 16 at EUR 249 m illion (+4.9%, excluding the effect of the acquisition of Aviva France’s 50% stake in Antarius), and a still low cost to income ratio (34.9% in Q2 17). The business’ contribution to Group net income increased +10.3% in Q2 17 to EUR 107 million.
In H1 17, net banking income was up +9.8% (+5.6%) at EUR 484 million and the contribution to Group net income was up +8.0% vs. H1 16 at EUR 189 million.
Financial Services to Corporates
Financial Services to Corporates maintained its commercial momentum in Q2 201 7.
Operational Vehicle Leasing an d Fleet Management experienced a significant i ncrease in its vehicle fleet.
Equipment Finance enjoyed a good level of new business in Q2 17, with a n increase of +6.8% (+7.0%) vs. Q2 16. Outstandi ng loans were up +4.0% (+5.0%) vs. Q2 16, at EUR 16.6 billion (excluding factoring), driven in p articular by Scandinavia, Italy and Germany. N ew business margins held up well despite an intense competitive environment.
Financial Services to Corporates’ net banking income rose +6.2% to EUR 4 44 million in Q2 17 (+1.5% when adjusted for changes in Group structure and at constant exchange rates, excluding notably the acquisition of the Parcours Group, concluded in May 2016). Operating expenses were higher over the period at EUR 219 million (+5.8% vs. Q2 16), in conjunction with the business’ strong growth and the integration of P arcours. Operating income came to EUR 216 m illion, up +10.2% vs. Q2 16 (+4.3%*) and the contribution to Group net income was EUR 157 million, up +6.1% vs. Q2 16.
In H1 17, Financial Services to Corporates’ net banking income came to EUR 908 million (+13.1%, +7.1%, vs. H1 16) and the co ntribution to Group net income was EUR 329 million (+19.2% vs. H1 16).
Q2 17 was marked by the succe ssful stock market floatation of ALD, the Group’ s Operational Vehicle Leasing and Fleet Management subsidiary, which involved the sale of a 20.18%(1) stake. This strategic operation will enable ALD to acc elerate its growth and become a leader in the mobility sector.
With net banking income of EUR 2,331 million in Q2 17, Global Banking & Inve stor Solutions saw its revenues decline -4.3% in Q2 17 vs. Q2 16 (EUR 2,435 million), which benefited from a more favourable market environment, particularly in Global Markets.
Net banking income totalled EUR 4,815 million in H1 17, very slightly higher (+0.5%) year-on-year.
Global Markets & Investor Ser vices
Global Markets & Investor Services’ net banking income amounted to EUR 1,496 million in Q2 17, down -3.1% vs. Q2 16 but up +2.6% at EUR 3,174 million in H1 17 vs. H1 16. After a buoyant start to the year, the market environment was more mixed in Q2. While global markets ended the quarter higher, Q2 was marked primarily by the widespread “wait-and-see” attitude of investors, in conjunction with ever lower volatility and a w eaker dollar.
Equities’ net banking income fell -3.3% in Q2 17 vs. Q2 16, to EUR 549 million. However, it was up +0.3% in H1 17 vs. H1 16. In still rising markets, there was further confirmation of investor appetite for structured products with, in pa rticular, strong demand in Europe. Accordingly, Equities posted its highest revenues since H1 2015. Flow products continued to experience limited a ctivity, in conjunction with very low volatility, leading to a drop in volumes, primarily on flow derivatives and cash. However, the Group confirmed its leaders hip position in this segment (No. 2 globally base d on Euronext Global volumes).
At EUR 586 million, the net banking income of Fixed Income, Currencies & Commodities experienced a moderate decline of -6.8% vs. Q2 16 and was up +3.4% in H1 17. In a less active market, structured products delivered an excellent performance, with revenues also at their highest level since H1 2015, confirmin g the successful expansion of our cross asset structured products franchise. In contrast, flow product revenues were lower, particularly on Rates, impacted by low volatility and reduced primary ma rket activity.
Prime Services’ net banking inc ome totalled EUR 176 million in Q2 17, stable vs. Q2 16 (and +4.5% in H1 17 vs. H1 16). This rep resents a high level and reflects the proactive development of the franchise and the client On-boar ding programme, in accordance with the growth p lan.
Securities Services’ assets under custody amounted to EUR 3,947 billion at e nd-June 2017, down -1.6% year-on-year. Over the same period, assets under administration were up +7.0% at EUR 621 billion. Securities Services’ revenues were up +8.2% in Q2 17 vs. Q2 1 6 at EUR 185 million (and +5.5% in H1 17 vs. H1 16 ), on the back of an increase in commissions and thanks to a less unfavourable rate environment.
Financing & Advisory
Financing & Advisory’s net b anking income came to EUR 567 million, down -11.0% vs. the high level in Q2 16, and -7.0% vs. H1 16. Earnings were driven downwards by the Natural Resources division, which was adversely af fected by a sluggish commodity market and lower origination volumes than last year. Despite good re sults, Commercial Banking & Advisory also e xperienced a decline compared with a very good Q2 16, which benefited from a “catching up” effect following a lacklustre first quarter. Finally, the Capit al Markets division maintained the healthy momentum of previous quarters, buoyed primarily by the performance of the securitisation and leveraged finance businesses.
Asset and Wealth Management
The net banking income of the Asset and Wealth Management business line totalled EUR 268 million in Q2 17, up +5.5% vs. Q2 16. The increase was also +5.5% in H 1 17.
Private Banking’s assets und er management amounted to EUR 118.7 billio n at end-June 2017. Driven by inflow of EUR +1.6 b illion, especially in France, assets under management were slightly higher (+1.6%) vs. H1 16, despite negative currency effects, in conjunction with the euro’s appreciation. Net banking income was up +4.9% vs. Q2 16, at EUR 214 million, and +3.0% in H1 17, due to the healthy commercial momentum in France. The gross margin remained at 110 basis points.
Lyxor’s assets under managem ent came to EUR 107.6 billion (+6.6% vs. H1 16), underpinned by positive inflow. Lyxor retained its No. 2 ETF ranking in Europe, with a market share of 10.3% (source ETFGI). Net banking income amounted to EUR 49 million in Q2 17, up +14.0% vs. Q2 16 and +26.7% in H1 17 vs. H1 16, driven by an excellent commercial momentum and an increase in ETF commissions.
Operating expenses
Global Banking & Investor Solutions’ operating expenses were down -3.1% in Q 2 17 vs. Q2 16. They were up +5.2% in H1 17 due to a base effect related to the partial refund of the Euribor fine(1) in Q1 16.
When restated for this effect a nd the implementation of IFRIC 21, operating e xpenses were down -2.3% vs. H1 16, reflecting the efforts to reduce costs. The cost to income ratio stood at 72.9% in Q2 17.
Operating income
Gross operating income came to EUR 632 million, down -7.3% vs. Q2 16, and -11.8% in H1 17 vs. H1 16, at EUR 1,166 million.
The net cost of risk amounted t o EUR -3 million in Q2 17, a substantial improve ment compared with EUR -106 million in Q2 16. The net cost of risk was EUR -24 million in H1 17 (EUR -246 million in H1 16).
The division’s operating income totalled EUR 629 million in Q2 17 (up +9.2% vs. Q2 16) and EUR 1,142 million in H1 17 (up + 6.1%).
Net income
The division’s contribution to Gro up net income came to EUR 499 million in Q2 17 (+11.4% vs. Q2 16) and EUR 882 million in H1 17. W hen restated for the effect of IFRIC 21, the division’s ROE amounted to 13.8% in H1 17 (12.1% in absolute terms).
The Corporate Centre’s net ban king income totalled EUR -1,193 million in Q2 17 (EUR +558 million in Q2 16), and EUR -969 million excluding the revaluation of the Group’s ow n financial liabilities (EUR +770 million in Q2 16). In Q2 17, net banking income included EUR -963 million in respect of the LIA settlement. In Q2 16, net banking income incorporated the effect of the capital gain on the sale of Visa shares for EUR 725 million. The Corporate Centre’s gross ope rating income was EUR -1,245 million in Q2 17 vs. EUR +570 million in Q2 16.
When restated for the revaluation of own financial liabilities, the effect of the LIA settlement in Q2 17 and the capital gain on the sale of Visa shares in Q2 16, gross operating income amounted to EUR -58 million in Q2 17 (vs. EUR 57 million in Q2 16). When restated for the same items, gross operating income came to EUR -155 million in H1 17 vs. EUR -188 million in H1 1 6.
The net cost of risk shows a pos itive balance of EUR 451 million. This balance includes both a write- back of EUR 750 million to cove r the LIA settlement and an additional allocation of EUR 300 million. The total amount of the provision for disputes amounted to EUR 1.9 billion at Jun e 30th, 2017.
The item “net profits or losses from other assets” includes primarily the capital gain, related to the change in consolidation method for Antarius (from the equity method to fully consolidated), recognised at the time of the acquisition of 50% of the capital by Sogécap.
The Corporate Centre’s contrib ution to Group net income was EUR -368 m illion in Q2 17, vs. EUR 174 million in Q2 16. Whe n restated for the impact of the revaluation of o wn financial liabilities, the Corporate Centre’s contribution to Group net income was EUR -210 million in Q2 17 vs. EUR +313 million in Q2 16.
Societe Generale generated Group net income of EUR 1,805 million in H1 2017. Underlying Group net income increased by 32.6% to EUR 2,551 million.
These results illustrate the good commercial performance of all the Societe Generale Group’s businesses as well as the extension of the momentum observed in previous qua rters in terms of cost and risk control.
The Group continued with the tra nsformation of its French Retail Banking model and the adaptation of its businesses in Global Banking & Investor Solutions and International Retail Banking & Financial Services.
The Group also continued with the optimisation of its portfolio of activities throu gh the acquisition of the whole of Antarius, the disposal of Splitska Banka and the stock market floatation of ALD.
The Group will present its strateg ic plan on November 28th.
