The FINANCIAL — Societe Generale SA, France's third- largest bank, said profit fell 84 percent in the third quarter as credit-related writedowns caused losses at the investment-banking and asset-management units.
Net income dropped to 183 million euros ($234 million) from 1.12 billion euros a year earlier, the Paris-based bank said in an e-mailed statement today. Societe Generale rose as much as 3.1 percent in Paris trading.
“The market is relieved to see that there was no major accident,'' said Francois Chaulet, who helps manage 150 million euros at Montsegur Finance in Paris, including Societe Generale shares. “That was the quarter where all the dangers lay for trading rooms, for derivatives and options.''
Societe Generale recorded markdowns of about 1.4 billion euros in the quarter, including 447 million euros related to the bankruptcy of Lehman Brothers Holdings Inc. and 453 million euros tied to U.S. bond insurers. Chief Executive Officer Frederic Oudea decided not to use new accounting rules that are less stringent on markdowns, which helped Deutsche Bank AG show an unexpected third-quarter profit.
“We've decided to be prudent,'' Oudea, 45, said in an interview with Bloomberg Television. “This profit isn't artificially enhanced.''
Eastern Europe
Societe Generale was up 95 cents, or 2.2 percent, to 43.12 euros by 10:46 a.m. in Paris trading. The stock is down 54 percent this year, compared with a 25 percent decline in BNP Paribas SA, France's largest bank. Societe Generale touched a 10- year low on Oct. 29 on concerns about potential derivative losses and the outlook for Russia and Eastern Europe, which account for about a fifth of profit.
Eastern European countries and Russia will continue to grow faster than Western Europe and the U.S., the bank said. To limit loan losses, Societe Generale will be “more selective'' in making loans in Romania.
“There is not a problem with Societe Generale,'' Oudea said in the interview. “No fantastic losses happened in October as markets seemed to think.''
The corporate and investment bank had a net loss of 244 million euros in the third quarter, while Societe Generale Asset Management had a loss of 6 million euros. Profit declined 5 percent at the French consumer-banking unit and rose 48 percent at the international retail operations.
`Extreme Volatility'
Societe Generale had total markdowns of 6.36 billion euros since the start of 2007, while revaluations on the bank's own debt and credit-default swaps resulted in total gains of about 1.5 billion euros, according to figures from the company.
Corporate and investment banking revenue rose 21 percent excluding exceptional items, helped by higher demand for interest-rate and foreign exchange structured products as well as for commodities, Societe Generale said. Revenue from equities activities fell 3 percent, the bank said.
“Corporate and investment banking is satisfactory,'' said Alain Tchibozo, a Paris-based analyst at ING Financial Markets. “Only the risk of a `hole' in equity derivatives, especially in a context of extreme volatility, is capping the stock.''
Societe Generale, which published results three days ahead of schedule, said Oct. 13 that it would have third-quarter profit of about 1 billion euros before exceptional items. Loan-loss provisions tripled to 687 million euros from 226 million euros a year earlier, the bank said.
Societe Generale in January announced the biggest trading loss in banking history, blaming unauthorized bets by Jerome Kerviel. The lender raised 5.5 billion euros in a March stock sale to replenish reserves.
Commerzbank
Societe Generale is selling 1.7 billion euros of subordinated debt to the French government. France said Oct. 20 it will invest 10.5 billion euros in the nation's banks to spur lending. The government said it is prepared to invest as much as 40 billion euros in French banks.
Governments across Europe are coming to the aid of banks battered by the financial crisis. Commerzbank AG, Germany's second-biggest bank, said today it will get an 8.2 billion-euro capital injection from the German government after reporting a third-quarter loss.
Societe Generale's Tier 1 capital ratio, a measure of financial strength, was 9 percent on Sept. 30, including the government funds. That's up from 8.2 percent at the end of June, the bank said.
The capital ratio is “appropriate'' to weather “a scenario of intense credit stress in 2009,'' Societe Generale said.
`Opportunities'
Societe Generale is not seeking takeovers this year, Oudea said. “For us, 2008 is a year to strengthen our muscles and then 2009 will be potentially the year of opportunities,'' he said. “I don't have the feeling that banking assets' prices will rise significantly in the three months ahead.''
Banks and financial companies worldwide have raised about $689 billion in capital and posted about $685 billion of credit losses and markdowns since the start of 2007 as the worst U.S. housing market since the Great Depression sparked a global credit crunch, data compiled by Bloomberg show.
Profit from Societe Generale's international banking business rose to 255 million euros from 172 million euros a year earlier, buoyed by the Czech Republic, Russia and Romania. Societe Generale became the majority shareholder in February of OAO Rosbank, which has 3 million individual customers in Russia.
The bank, fined 4 million euros in July by France's Banking Commission because of “serious shortcomings'' in internal controls in the Kerviel affair, plans to spend at least 100 million euros over two years to enhance risk procedures.
Management Changes
Societe Generale changed its top management after Kerviel's loss. Jean-Pierre Mustier ceded his position in October running the investment bank to Michel Peretie, the former European head of Bear Stearns International Trading. Mustier became head of the asset management unit. Oudea took over as CEO in May from Daniel Bouton, 58, who stayed as chairman.
Societe Generale Asset Management's third-quarter loss compares with a year-earlier profit of 40 million euros. The unit was hurt by falling stock markets and 7.9 billion euros of outflow of funds, the bank said. Assets under management fell to 298 billion euros at the end of September from 309.2 billion at the end of June. The results exclude Lyxor Asset Management, which had 70.3 billion euros under management on Sept. 30.
Earnings from consumer banking in France fell to 345 million euros from 364 million euros. Revenue at the French retail operations will probably rise between 1 percent and 2 percent in 2008, Societe Generale has said.
Revenue at the French branches rose 2.4 percent in the third quarter, above the company's target, and the number of personal accounts rose by 27,100.
“The impact of the exceptional fraud is subsiding, with the gradual return to a steady stream of new personal current accounts opened for individual customers,'' the bank said.
