Societe Generale profit falls 19%

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The FINANCIAL — Societe Generale’s Board of Directors, which met on May 3rd, 2017 under the chairmanship of Lorenzo Bini Smaghi, examined the results for Q1 2017.

The Societe Generale Group’s businesses turned in a good commercial and financial performance in Q1 2017. Group net income was EUR 747 million (EUR 924 million in Q1 2016). This result includes an additional allocation to provision for disputes of EUR – 350 million and, as for each first quarter, the effect of the implementation of the IFRIC 21 accounting standard. When corrected for these factors and non-economic items, Group net income totalled EUR 1,392 million, up +50.0% vs. Q1 2016 (excluding partial refund of the Euribor fine amounting to EUR 218 million) and the corresponding underlying ROE stood at 10.5% in Q1 2017 (vs. 7.1% in Q1 16).

The businesses’ contribution to Group net income was up +31.4% in Q1 2017 excluding the Euribor refund in 2016, driven by the strong growth in International Retail Banking & Financial Services and Global Banking & Investor Solutions, whereas French Retail Banking’s earnings were slightly lower against a backdrop of low interest rates and increased investments in the transformation of its business model.

Net banking income, excluding non-economic items, totalled EUR 6,452 million in Q1 2017, up +7.0% vs. Q1 2016, testifying to the businesses’ good commercial performance. French Retail Banking’s net banking income was slightly lower in an environment of still low interest rates (-1.3%), whereas the revenues of International Retail Banking & Financial Services and Global Banking & Investor Solutions were significantly higher (+8.4% and +5.4% respectively). Book net banking income totalled EUR 6,474 million in Q1 2017 (+4.8% vs. Q1 2016).

There was a controlled increase in operating expenses(1) of +2.6% (+1.4%*) in Q1 2017 vs. Q1 2016, reflecting the acceleration of investments in French Retail Banking, the increased activity in International Retail Banking & Financial Services, and the effects of Global Banking & Investor Solutions’ cost savings plans, according to Societe Generale.

The net cost of risk (excluding the above- mentioned additional allocation to provision for disputes) was at the low level of EUR -277 million in Q1 2017, a substantial decline vs. Q1 2016 (EUR – 524 million). The commercial cost of risk stood at the very low level of 24 basis points in Q1 2017 (46 basis points in Q1 2016).

After the Q1 Board review of the accounts, Societe Generale has today announced that it has reached a settlement with the Libyan Investment Authority regarding the civil dispute opposing them and relating to transactions dating back to 2007 amounting to EUR – 963 million. The parties will notify the UK court of the settlement this morning to enable the court to put an end to the proceedings.

Given notably the additional provision for disputes booked in Q1 17 for EUR 350 million, the impact of this settlement in full-year Group net income is fully covered as from Q1 2017. The detailed accounting will be recorded in Q2 with notably an impact in the Corporate Centre’s net banking income corresponding to the amount of the settlement.

The Common Equity Tier 1 (fully-loaded CET1) ratio was up +10 basis points vs. December 31st, 2016, at 11.6%.

Earnings Per Share, excluding non-economic items, amounts to EUR 0.76 at end-March 2017, vs. EUR 0.90 at end-March 2016.

Commenting on the Group’s results for Q1 2017, Frédéric Oudéa – Chief Executive Officer – stated:

“Once again, Societe Generale has demonstrated the quality of its diversified and integrated banking model, with a good performance in all its businesses. Group net income testifies to the substantial increase in the contribution of its businesses, underpinned by its revenue growth and its cost and risk control. The Group is also continuing with its transformation. It has initiated a process to simplify its organisational set-up which will enable it to even better serve its customers, increase its agility and innovative capacity, and continue to exploit synergies between its businesses. Finally, over the next few quarters, the Group will continue actively working to bring an end to past disputes and complete the Culture and Conduct projects in order to further enhance the quality of its services and the control of its risks.”

Net banking income

The Group’s net banking income, excluding non-economic items, was EUR 6,452 million in Q1 17, up +7.0% vs. Q1 16, reflecting the good performance of the Group’s businesses.

The businesses’ net banking income was up +4.0% in Q1 17 vs. Q1 16.

French Retail Banking’s (RBDF) net banking income was slightly lower (-1.3%) in Q1 17 than in Q1 16 (-2.3% excluding PEL/CEL provision). In a low interest rate environment, French Retail Banking stepped up its commercial initiatives, continuing to develop synergies and fee-generating activities.

International Retail Banking & Financial Services’ (IBFS) net banking income rose +8.4% (+5.0%*) in Q1 17 vs. Q1 16. International Retail Banking’s revenues rose +4.8% (+2.4%*) vs. Q1 16, driven by the healthy growth observed in Africa and the improved activity in Russia. Insurance activities continued to grow (+6.8% in Q1 17 vs. Q1 16), while Financial Services to Corporates provided further evidence of its dynamism (+20.5%, +13.0%* in Q1 17 vs. Q1 16).

Global Banking & Investor Solutions (GBIS) generated net banking income up +5.4% in Q1 17 vs. Q1 16. Global Markets and Investor Services enjoyed a good start to the year (net banking income up +8.3% vs. Q1 16), particularly for Fixed Income, Currencies & Commodities. Financing & Advisory revenues were slightly lower (-2.6%) in Q1 2017 vs. the high level in Q1 2016. In Asset and Wealth Management, net banking income rose +5.5% due primarily to the integration of Kleinwort Benson in the United Kingdom.

The accounting impact of the revaluation of the Group’s own financial liabilities was EUR +25 million in Q1 17 (EUR +145 million in Q1 16). The DVA impact was EUR -3 million in Q1 17 (0 in Q1 16). These two factors constitute the restated non-economic items in the analyses of the Group’s results.

Book net banking income totalled EUR 6,474 million in Q1 17 (EUR 6,175 million in Q1 16).

Operating expenses

The Group’s operating expenses amounted to EUR -4,644 million in Q1 17. They were 2.6% (1.4%*) higher than in Q1 16, adjusted for IFRIC 21 and the partial refund of the Euribor fine in Q1 16(2). The increase reflects the acceleration of investments in the transformation of French Retail Banking and efforts to support the growth of International Retail Banking & Financial Services, and testifies to the containment of operating expenses in Global Banking & Investor Solutions, due to the cost savings plans initiated in order to offset the rise in regulatory costs.

Gross operating income

The Group’s book gross operating income totalled EUR 1,830 million in Q1 2017 vs. EUR 1,891 million in Q1 2016. Excluding non-economic items, gross operating income amounted to EUR 1,808 million in Q1 17, substantially higher than in Q1 16 (EUR 1,528 million, corrected for the partial refund of the Euribor fine, +18.3%).

Cost of risk

The Group’s net cost of risk in Q1 17 includes an additional allocation to provision for disputes of EUR – 350 million. Excluding this item, the net cost of risk was EUR -277 million in Q1 17, down – 47.1% vs. Q1 16, confirming the structural reduction of the risk profile in the three business divisions.

The commercial cost of risk (expressed as a fraction of outstanding loans) continued to decline, to a very low level of 24 basis points in Q1 2017 (vs. 46 basis points in Q1 16). It was lower in all the businesses:

In French Retail Banking, the commercial cost of risk was 31 basis points in Q1 17 vs. 35 basis points in Q1 16, stable for business customers and lower for individual customers.

At 35 basis points in Q1 17 vs. 74 basis points in Q1 16, International Retail Banking & Financial Services’ cost of risk was substantially lower, testifying to the effectiveness of the policies implemented to improve the quality of the loan portfolio and the recovery process. In Q1 17, the division benefited from the positive impact of receiving an insurance indemnity in Romania (amounting to 8 basis points).

Global Banking & Investor Solutions’ cost of risk was at a low level of 5 basis points in Q1 2017 (vs. 41 basis points in Q1 16).

The gross doubtful outstandings ratio declined to 4.8% at end-March 2017 (vs. 5.3% at end-March 2016). The Group’s gross coverage ratio for doubtful outstandings stood at 65%, improving one point vs. end-March 2016.

Overall, the Group’s commercial cost of risk is expected to be between 30 basis points and 35 basis points for 2017.

Operating income

The Group’s book operating income totalled EUR 1,203 million in Q1 17 vs. EUR 1,367 million in Q1 16. Excluding non-economic items and the additional allocation to provision for disputes, operating income amounted to EUR 1,531 million, vs. EUR 1,004 million in Q1 16 (excluding Euribor refund), up +52.5%.

Net income

Book Group net income totalled EUR 747 million in Q1 2017, vs. EUR 924 million for the same period in 2016.

When corrected for non-economic items and the additional allocation to provision for disputes, Group net income amounted to EUR 1,083 million in Q1 17 (vs. EUR 829 million in Q1 16, or EUR 611 million excluding the Euribor refund).

After correction for the effects of the implementation of the IFRIC 21 standard and adjustment for the partial refund of the Euribor fine in 2016, underlying Group net income was up +50.0% at EUR 1,392 million. As a result of this good performance, the corresponding ROE was 10.5% in Q1 2017 (5.2% in absolute terms) vs. 7.1% in Q1 16 (excluding non-economic items, Euribor refund and adjusted for IFRIC 21, identical level in absolute terms).

Earnings per share amounts to EUR 0.77 in Q1 2017 (vs. EUR 1.02 in Q1 2016), or EUR 0.76 excluding non-economic items in Q1 2017 (EUR 0.90 in Q1 16).

2. THE GROUP’S FINANCIAL STRUCTURE

Group shareholders’ equity totalled EUR 62.2 billion at March 31st, 2017 (EUR 62.0 billion at December 31st, 2016) . Net asset value per share was EUR 63.96, including EUR 1.39 of unrealised capital gains. Tangible net asset value per share was EUR 58.08.

The consolidated balance sheet totalled EUR 1,401 billion at March 31st, 2017 (EUR 1,382 billion at December 31st, 2016). The net amount of customer loan outstandings, including lease financing, was EUR 402 billion at March 31st, 2017 (EUR 403 billion at December 31st, 2016) – excluding assets and securities sold under repurchase agreements. At the same time, customer deposits amounted to EUR 391 billion, vs. EUR 397 billion at December 31st, 2016 (excluding assets and securities sold under repurchase agreements).

At March 31st, 2017, the Group had issued EUR 11 billion of medium/long-term debt with EUR 10 billion at parent company level (representing the achievement of 40% of the 2017 financing programme of EUR 25 billion), having an average maturity of 5.0 years and an average spread of 32 basis points (vs. the 6- month mid-swap, excluding subordinated debt). The subsidiaries had issued EUR 1 billion. The LCR (Liquidity Coverage Ratio) was well above regulatory requirements at 129% at end-March 2017 vs. 142% at end-December 2016.

The Group’s risk- weighted assets (RWA) amounted to EUR 353.8 billion at March 31st, 2017 (vs. EUR 355.5 billion at end-December 2016) according to CRR/CRD4 rules. Risk -weighted assets in respect of credit risk represent 82% of the total, or EUR 291.6 billion, down -0.9% vs. December 31st, 2016.

At March 31st, 2017, the Group’s Common Equity Tier 1 ratio stood at 11.6%(3) (11.1% at end- March 2016 and 11.5% at end- December 2016), up 10 basis points in Q1 2017 vs. end-2016. The Tier 1 ratio stood at 14.4% (13.7% at end-March 2016 and 14.5% at end-December 2016) and the total capital ratio amounted to 17.8%, a decline of -11 basis points vs. end-December 2016 (17.9%) prior to the maturity of an additional Tier 1 capital issue.

With an estimate of 21.5% of RWA and 6.1% of leveraged exposure at end-March 2017, the Group’s TLAC ratio is already above the FSB’s requirements for 2019.

The leverage ratio stood at 4.1% at March 31st, 2017 (4.2% at end-December 2016 and 4.0% at end-March 2016), a decline of 15 basis points in Q1 17 vs. end-2016.

French Retail Banking has delivered a good commercial performance since the beginning of the year and generated resilient earnings in Q1 2017 in a low interest rate environment.

Activity and net banking income

French Retail Banking’s three brands (Societe Generale, Credit du Nord and Boursorama) continued with their commercial expansion. The traditional banking networks saw a 2% rise in new individual customers and Boursorama set a new acquisition record with 80,500 new customers in Q1 17 (+32%), thereby strengthening its position as the leading online bank in France, with more than one million customers at end-March 2017. In the business segment, the Societe Generale and Credit du Nord networks also experienced an increase, with nearly 1,300 new relationships in Q1 17 (+7.7% vs. Q1 16).

French Retail Banking’s loan production was very dynamic in Q1 17 and reflects the assistance provided to businesses and individuals for the financing of their projects. At EUR 5.9 billion in Q1 17, housing loan production climbed +63% vs. Q1 16, which is only partially reflected in the growth in home loan outstandings (+1.8% in Q1 17) due primarily to the pace of prepayments in a low interest rate environment. Corporate investment loan production was also buoyant: it grew +28% vs. Q1 16 to EUR 2.8 billion, leading to a 1.2% rise in average outstandings. Overall, average outstanding loans rose +1% vs. Q1 16 to EUR 184.2 billion.

Average outstanding balance sheet deposits came to EUR 191.8 billion at end-March 2017. They were up +8.8%, underpinned by the growth of sight deposits (+17.0%). The average loan/deposit ratio therefore amounted to 96% at end-March 2017 (vs. 100% on average in 2016).

French Retail Banking’s growth drivers are very healthy with, notably, high net inflow for Private Banking in France of EUR +0.8 billion in Q1 17 and gross life insurance inflow of EUR 2.4 billion marked by a strong attraction for unit-linked contracts (30% of inflow in Q1 17 vs. 18% in Q1 16).

This good commercial momentum helped partially offset the negative effects of the low interest rate environment and mortgage renegotiations. After neutralising the impact of PEL/CEL provisions, net banking income came to EUR 2,058 million in Q1 17, down -2.3% vs. Q1 16. The interest margin contracted (-7.2% vs. Q1 16) due to mortgage renegotiations and prepayments despite the production of higher margin loans and robust deposit inflow for French Retail Banking. Commissions rose +4.8% in Q1 17, confirming the recovery under way since Q4 16. There was a strong increase in financial commissions, up +10% vs. Q1 16, due to the good level of brokerage commissions and the healthy momentum of life insurance, particularly for unit- linked contracts. Service commissions were up +3.4% vs. Q1 16, as a result of the gradual increase in the number of products subscribed by new customers and the commercial efforts aimed at professional and corporate customers. The erosion of net banking

income is expected to be between -3% and -3.5% in 2017 (excluding the impact of PEL/CEL provisions).

Operating expenses

French Retail Banking’s operating expenses came to EUR 1,461 million, up +2.5% vs. Q1 16 (and +1.7% restated for the increase in the SRF). This increase reflects the Group’s ongoing investment in the digital transformation process and fast- growing activities. Operating expenses are expected to rise between +3% and +3.5% in 2017. As part of its transformation plan, the Group has notably closed 21 branches in France since the beginning of the year.

Operating income

Operating income totalled EUR 450 million in Q1 17 (EUR 479 million in Q1 16), underpinned by the sharp decline in the net cost of risk (-19%) which reflects the quality of French Retail Banking’s portfolio.

Contribution to Group net income

French Retail Banking’s contribution to Group net income amounted to EUR 319 million in Q1 17, down -2.7% vs. Q1 16, testifying to the division’s resilient profitability in a low interest rate environment. RONE adjusted for the IFRIC 21 charge stood at 13.5% (vs. 14.8% in Q1 16).

4. INTERNATIONAL RETAIL BANKING & FINANCIAL SERVICES

The division’s net banking income totalled EUR 1,978 million in Q1 17, up +8.4% vs. Q1 16, driven by the good commercial momentum in all regions and businesses. Operating expenses remained under control and amounted to EUR 1,205 million over the same period, leading to a one point improvement in the cost to income ratio. As a result, gross operating income totalled EUR 773 million in Q1 17 (+11.7% vs. Q1 16) . The net cost of risk improved significantly, amounting to EUR 111 million (-47.6% vs. Q1 16) due to good risk management and the receipt of an insurance indemnity in Romania. The division’s contribution to Group net income totalled EUR 433 million in Q1 17, substantially higher than in Q1 16 (+44.3%). This includes a number of non-recurring items, whose total contribution was EUR 49 million. Excluding these non- recurring items, the contribution to Group net income was up EUR 84 million, representing an increase of +28% vs. Q1 16.

International Retail Banking

At end-March 2017, International Retail Banking’s outstanding loans totalled EUR 85.5 billion. This represented an increase of +9.7% (+7.9%*) vs. Q1 16, confirming the dynamic activity in Europe, particularly in the individual customer segment, as well as the buoyant activity in numerous African operations. Deposit inflow was also robust: outstanding deposits rose +9.6% (+8.3%*) vs. Q1 16, to EUR 77.9 billion.

International Retail Banking’s financial performance continued to improve. Revenues were up +4.8% (+2.4%*) vs. Q1 16 at EUR 1,277 million, underpinned by volume growth, while the increase in operating expenses of +2.2%* when adjusted for changes in Group structure and at constant exchange rates vs. Q1 16 (+6.0% in absolute terms) reflects investments in fast-growing activities. Gross operating income came to EUR 425 million, up +2.7% vs. Q1 16. International Retail Banking’s contribution to Group net income amounted to EUR 194 million in Q1 17 (+59.0% vs. Q1 16), due primarily to the sharp decline in the net cost of risk (-47.3% vs. Q1 16).

In Western Europe, outstanding loans were up +12.7% vs. Q1 16 at EUR 16.5 billion. Car financing remained particularly dynamic in the region. Revenues totalled EUR 181 million and gross operating income EUR 85 million in Q1 17. The contribution to Group net income came to EUR 43 million, up +38.7% vs. Q1 16.

In the Czech Republic, the Group delivered a solid commercial performance in Q1 17. Outstanding loans rose +9.4% (+9.3%*) vs. Q1 16 to EUR 21.9 billion, driven by dynamic housing loan and consumer loan production. Outstanding deposits climbed +10.6% (+10.5%*) year -on-year to EUR 28.2 billion. Despite this positive volume effect, revenues were stable (-0.8%, -0.9%*) in Q1 17 at EUR 255 million, given the persistent low interest rate environment. Over the same period, operating expenses remained under control at EUR 163 million, with the increase of +6.5% attributable primarily to a non-recurring impairment. The contribution to Group net income, which amounted to EUR 64 million (+60.0% vs. Q1 16), benefited from provision write-backs as well as a capital gain on a property disposal, following the sale of the historical headquarters in Q1 17. The contribution to Group net income of non-recurring items was EUR 14 million in Q1 17.

In Romania, the economic environment remains favourable. In Q1 17, outstanding loans rose +3.6% (+5.4%*) year-on-year to EUR 6.3 billion, primarily due to growth in the individual customer and large corporate segments. Outstanding deposits were 5.4% (7.3%*) higher year-on-year, at EUR 9.1 billion. In this context, net banking income was stable (- 0.8%, -0.2%*) at EUR 127 million in Q1 17, with the 6.5%* increase in net interest income vs. Q1 16 offsetting the decline in commissions resulting from the regulatory capping of certain banking fees since June 30th, 2016. Rigorous cost control resulted in operating expenses declining -4.1% (- 3.5%*) to EUR 94 million. Concerning the net cost of risk, Q1 17 was marked by provision write-backs, due primarily to insurance indemnities received over the period, whose contribution to Group net income was EUR 12 million. As a result, the BRD group’s contribution to Group net income was EUR 28 million; it was EUR 2 million in Q1 16.

In other European countries, outstanding loans were up +4.3% (+8.3%*) vs. Q1 16, at EUR 11.9 billion, principally in the individual customer segment, and with a healthy level of growth in virtually all the operations. Deposit inflow was buoyant, with outstandings up +8.5% (+10.8%*) year-on-year at EUR 11.8 billion, also driven by the individual customer segment. In Q1 17, revenues rose +4.2%*, when adjusted for changes in Group structure and at constant exchange rates, to EUR 175 million (-2.2% in absolute terms), in conjunction with the growth in volumes, while operating expenses were down -6.7% (-3.1%*) at EUR 125 million. The contribution to Group net income came to EUR 2 million, after EUR 24 million in Q1 16, due to a net cost of risk of EUR 44 million (vs. EUR 12 million in Q1 16), related to the provisioning of a commitment. These results include the contribution of the Croatian subsidiary, Splitska Banka, whose disposal was concluded on May 2nd, 2017, with a positive effect on the Group’s Common Equity Tier 1 ratio of more than 8 basis points expected in Q2 17.

In Russia, the economic environment continues to stabilise, reflected in the appreciation of the rouble (RUB/EUR at 60.3 at end-March 2017 vs. 76.3 at end-March 2016) and the decline in inflation (+4.3% in March 2017). Corporate activity continued to hold up well, while the recovery in loan production for individual customers accelerated, with car loan activity particularly buoyant. When adjusted for changes in Group structure and at constant exchange rates, outstanding loans were up +0.7%* vs. Q1 16 at EUR 9.7 billion (+23.2% in absolute terms, given the rouble’s appreciation against the euro over the period) . Outstanding deposits were stable* (+18.0% in absolute terms) vs. Q1 16, at EUR 7.8 billion. Net banking income for SG Russia(4) totalled EUR 195 million in Q1 17, up +23.4% (-6.2%* when adjusted for changes in Group structure and at constant exchange rates) in conjunction with the rouble’s sharp appreciation against the euro. Operating expenses remained under control at EUR 162 million, +0.8%* vs. Q1 16, when adjusted for changes in Group structure and at constant exchange rates, (+32.9% vs. Q1 16 in absolute terms). Overall, SG Russia made a positive contribution to Group net income of EUR 9 million in Q1 17. SG Russia made a loss of EUR -18 million in Q1 16.

In Africa and other regions where the Group operates, outstanding loans rose +7.4% (+6.8%* vs. Q1 16) to EUR 19.1 billion, with a healthy commercial momentum in numerous African operations (outstanding loans in Africa up +8.4% or +7.6%* when adjusted for changes in Group structure and at constant exchange rates), in conjunction with the dynamic economic growth in the region. Outstanding deposits were up +8.2% (+7.7%*). Net banking income came to EUR 366 million in Q1 17, an increase vs. Q1 16 (+4.9%, +5.9%*). Over the same period, operating expenses rose +5.2% (+6.2%*) in parallel with the Group’s commercial development. The contribution to Group net income came to EUR 57 million in Q1 17, up +9.6% vs. Q1 16.

Insurance

The life insurance savings business saw a +4% increase in outstandings in Q1 17 vs. Q1 16 as well as a stronger trend towards unit-linked products, with the share of unit-linked products in outstandings up +3 points vs. Q1 16.

There was further growth in Personal Protection insurance (premiums up +8% vs. Q1 16). Likewise, Property/Casualty insurance continued to grow (premiums up +8% vs. Q1 16), with substantial growth internationally and higher premiums in the car and home insurance segments.

The Insurance business turned in a good financial performance in Q1 2017, with net banking income up +6.8% vs. Q1 16 at EUR 235 million (+6.3%*), and a still low cost to income ratio (46.8% in Q1 17). The business’ contribution to Group net income increased +5.1% vs. Q1 16 to EUR 82 million.

As from Q2 2017, the Group’s Insurance business will be strengthened by the finalisation of the acquisition of Aviva France’s 50% stake in Antarius, an insurance company dedicated to the Credit du Nord networks, which occurred on April 1st, 2017.

Financial Services to Corporates

Financial Services to Corporates maintained its commercial dynamism in Q1 2017.

Operational Vehicle Leasing and Fleet Management experienced a substantial increase in its vehicle fleet (+14.3% vs. the end of Q1 16). The increase can be attributed on the one hand to the integration of the Parcours Group, and on the other to the fleet’s high organic growth, driven by Western Europe and SME customers.

Societe Generale confirms the good progress in the preparation of the stock market flotation of its ALD subsidiary, scheduled for 2017, subject to market conditions, through the disposal of a 20% to 25% stake. This strategic operation will enable ALD to accelerate its growth and become a leader in the mobility sector.

Equipment Finance’s outstanding loans were up +6.7% (+5.9%*) vs. Q1 16, at EUR 16.5 billion (excluding factoring), driven by several major transactions in the technology sector. New business margins held up well despite an intense competitive environment.

Financial Services to Corporates’ net banking income rose +20.5% in Q1 17 to EUR 464 million (+13.0%* when adjusted for changes in Group structure and at constant exchange rates, excluding notably the acquisition of the Parcours Group, vs. Q1 16). Operating expenses were higher over the period at EUR 226 million (+11.9% vs. Q1 16), in conjunction with the business’ strong growth and the integration of Parcours (+1.5%*). Operating income came to EUR 225 million, up +30.1% vs. Q1 16 (+26.3%*) and the contribution to Group net income was EUR 172 million, up +34.4% vs. Q1 16.

Global Banking & Investor Solutions enjoyed a good start to the year, with revenues of EUR 2,484 million in Q1 17, up +5.4% vs. Q1 16 (EUR 2,357 million). This result reflects primarily the good quarter in Global Markets but also the good performance of Asset and Wealth Management, offsetting a slight decline in Financing & Advisory.

Global Markets & Investor Services

Global Markets & Investor Services’ net banking income totalled EUR 1,678 million in Q1 17, up +8.3% vs. Q1 16. Following on from Q4 16, investors were active at the beginning of the quarter, in conjunction notably with the rise in interest rates and the improvement in the global economic outlook. After this more buoyant period of activity, the resurgence of political uncertainty around the elections in Europe and the direction of US policy led to a certain “wait-and-see” attitude in the markets.

Equities’ revenues rose +4.1% in Q1 17 vs. Q1 16, to EUR 562 million. Investor appetite for structured products increased, with strong demand in Asia and Europe. As a result, the business’ revenues were up for the seventh consecutive quarter in this segment. In contrast, despite rising markets, investors were less active in flow products, in conjunction with very low volatility, leading to a drop in volumes, notably in cash activities, where the Group retains a leadership position.

Fixed Income, Currencies & Commodities continued to grow, with revenues up +12.8% vs. Q1 16 at EUR 777 million, thus enjoying its best quarter since 2012. This increase reflects the good commercial momentum, both for flow and structured products. The environment was buoyant in Q1, both for Credit, which benefited from healthy activity in the primary market, and for Rates, with increased volatility.

Prime Services’ revenues totalled EUR 176 million in Q1 17, up +9.3% vs. Q1 16 and at their highest level since the integration of Newedge. This result reflects the healthy commercial momentum, particularly in Execution and Financing activities. The business actively pursued its commercial expansion and increased its market share by +1.9 points vs. Q1 16, to 14.8%.

Securities Services saw its assets under custody reach EUR 3,979 billion, up +0.6% vs. end-2016. Over the same period, assets under administration were up +4.2% at EUR 627 billion. Securities Services’ revenues were up +2.5% in Q1 17 vs. Q1 16 at EUR 163 million. The healthy commercial momentum enabled commissions to increase, offsetting the decline in interest margins in a low interest rate environment.

Financing and Advisory

Financing and Advisory posted revenues of EUR 557 million, down -2.6% vs. the high level in Q1 16. Weaker asset financing activity in a highly competitive market was partially offset by the good performance of natural resources financing. The capital raising activity maintained the healthy momentum of previous quarters, bolstered in particular by the good performance of the securitisation, acquisition and leveraged finance businesses.

Asset and Wealth Management

The revenues of the Asset and Wealth Management business line totalled EUR 249 million in Q1 17, up +5.5% vs. Q1 16, including a structure effect related to the integration of Kleinwort Benson.

Private Banking’s assets under management amounted to EUR 119 billion at end-March 2017. Thanks to a healthy net inflow and positive market effects, assets under management rose +2.8% vs. end-2016. Net banking income was up +1.0% vs. Q1 16, at EUR 198 million, reflecting the transformation under way in our geographical franchises, despite a pre-election “wait-and-see” attitude in France. The erosion of the margin in Q1 (which nevertheless remained at a satisfactory level of 101 basis points vs. 106 basis points in Q1 16) was related to the” wait-and-see” attitude, partially offset by a rebound in the brokerage business.

Lyxor’s assets under management came to EUR 107 billion (+0.9% vs. Q4 16) thanks to a record EUR 7 billion inflow. In the ETF segment, Lyxor moved up one place in the rankings to No. 2 in Europe with a market share of 10.2% (source ETFGI). Lyxor’s revenues amounted to EUR 46 million in Q1 17 (EUR 32 million in Q1 16), due primarily to an increase in commissions received.

Operating expenses

Global Banking & Investor Solutions’ operating expenses were up +13.6% in Q1 17 vs. Q1 16, which included the partial refund of the Euribor fine(5). When restated for this effect and the increase in the contribution to the European Single Resolution Fund(6), operating expenses were down -2% vs. Q1 16, due to the effect of the transformation plans implemented in 2015 and 2016.

Operating income

Gross operating income came to EUR 534 million, down -16.6% vs. Q1 16, primarily due to the effect of the partial refund of the Euribor fine(1) recorded in Q1 16.

The net cost of risk was substantially lower, in conjunction with the improved environment in the oil sector, at EUR 21 million in Q1 17 vs. EUR 140 million in Q1 16, reflecting the division’s good risk management.

Global Banking & Investor Solutions’ operating income totalled EUR 513 million in Q1 17, up +2.6% vs. Q1 16. When restated for the partial refund of the Euribor fine(1) in Q1 16, operating income was up 81.9% between Q1 16 and Q1 17.

Net income

The division’s contribution to Group net income came to EUR 383 million in Q1 17 ( -15.6% and +62.3% excluding the effect of the Euribor fine refund in Q1 2016) . When restated for the effect of the IFRIC 21 standard, the division’s ROE amounted to 15.3% (10.4% in absolute terms).

The Corporate Centre includes:

the property management of the Group’s head office,

the Group’s equity portfolio,

the Treasury function for the Group,

certain costs related to cross-functional projects and certain costs incurred by the Group and not re-invoiced to the businesses.

The Corporate Centre’s net banking income totalled EUR -44 million in Q1 17 (EUR -91 million in Q1 16), and EUR -69 million excluding the revaluation of the Group’s own financial liabilities (EUR -236 million in Q1 16).

The Corporate Centre’s gross operating income was EUR -72 million in Q1 17 vs. EUR -100 million in Q1 16. When restated for the revaluation of own financial liabilities, gross operating income came to EUR -97 million in Q1 17 (vs. EUR -245 million in Q1 16).

For full-year 2017, the Corporate Centre’s gross operating income, excluding non-economic and non-recurring items, is expected to be around EUR -500 million.

The net cost of risk includes a EUR 350 million charge corresponding to an additional allocation to provision for disputes in Q1 17. A settlement has been reached, after the Board review of the Q1 17 results, with the Libyan Investment Authority (LIA) to put a final end to the dispute opposing Societe Generale and LIA before the UK civil courts. Given the additional provision for disputes recorded in Q1 17 for EUR 350 million, the impact of this settlement on the Group net income for the full year is fully covered as from Q1 17.

The Corporate Centre’s contribution to Group net income was EUR -388 million in Q1 17, vs. EUR -158 million in Q1 16. When restated for the impact of the revaluation of own financial liabilities (EUR +17 million in Q1 17 and EUR +95 million in Q1 16), and the additional allocation to provision for disputes (EUR 350 million in Q1 17), the Corporate Centre’s contribution to Group net income was EUR -55 million in Q1 17 vs. EUR -158 million in Q1 16.

7. CONCLUSION

Societe Generale’s results for Q1 2017 include non-economic items and an allocation to provision for disputes. When book income is adjusted for these factors, underlying Group net income amounted to more than EUR 1 billion, substantially higher in Q1 2017 compared to Q1 2016.

Societe Generale has once again demonstrated the quality of its diversified and integrated banking model, based on the excellence of its relationship model, its cost and risk control, and the commitment of its employees. The Group is continuing with the investments in its transformation and the rollout of its Culture and Conduct programme.

To this end, the Bank has initiated a process to simplify its organisational set-up which will enable it to even better serve its customers, increase its agility and continue to exploit synergies between its businesses based on the quality of its risk control. The Group will present its strategic plan on 28th November 2017.

 

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