SocGen Fourth-Quarter Net Drops 89% on Investment Bank Loss

Societe Generale SA, France’s second-largest bank, said fourth-quarter profit fell 89 percent as the investment bank posted its first loss in two years.

Societe Generale fell as much as 3.8 percent in Paris trading after reporting net income of 100 million euros ($130 million), down from 874 million euros a year earlier and less than the 317 million-euro average estimate of 14 analysts surveyed by Bloomberg.

Societe Generale’s corporate and investment bank had a 482 million-euro loss as Europe’s sovereign-debt crisis curbed client trading and the bank sold and wrote down troubled assets, the Paris-based company said in a statement today. BNP Paribas SA, the biggest French bank, reported yesterday that pretax profit at its investment-banking unit plunged 99 percent.

“These results bear the burden of the crisis,” said Christophe Nijdam, an analyst at AlphaValue in Paris who has an “add” rating on Societe Generale. For both companies, consumer banking “saved the day, while CIB is the stinker,” he said.

Like BNP, Societe Generale said it reached a 9 percent core capital ratio at the end of 2011, six months before the European Banking Authority’s deadline. Earnings from French consumer banking amounted to 302 million euros in the quarter, unchanged from a year earlier. Profit at the international retail unit fell 28 percent to 75 million euros.

Societe Generale fell 82 cents, or 3.7 percent, to 21.56 euros by 9:37 a.m. in Paris, paring its 2012 gain to 26 percent. BNP Paribas has advanced 12 percent this year, and Credit Agricole SA, France’s No. 3 bank by market value, climbed 7 percent.

European financial stocks rebounded in the first six weeks of the year after the European Central Bank provided 489 billion euros to lenders through a three-year refinancing operation in December. The central bank plans to offer more such loans at the end of February.

“There is more comfort in the system” because of the ECB’s long-term lending, said Societe Generale Chief Executive Officer Frederic Oudea in an interview with Bloomberg Television. “We need to add successes in this path to restoration of confidence.”

Societe Generale, which is cutting about 14 percent of its corporate and investment-banking workforce in France after shuffling the unit’s management, follows competitors including Deutsche Bank AG of Germany and UBS AG of Switzerland in reporting a loss at the division in the fourth quarter.

“Substantial uncertainty, investor risk aversion and the liquidity crisis resulted in a gradual reduction in client- driven activity, which reached historically low levels at the end of the year,” the French bank said in the statement today.

French banks have been embroiled in Europe’s crisis because of their $620 billion in holdings of private and public debt in Greece, Portugal, Ireland, Italy and Spain, according to data from the Bank for International Settlements.

Societe Generale, BNP Paribas and Credit Agricole in September began trimming about 300 billion euros in assets to comply with stricter capital rules after their stocks plunged and U.S. money-market funds became reluctant to lend to them, reducing their refinancing options in dollars.

Societe Generale in December picked Didier Valet, chief financial officer since 2008, to replace Michel Peretie as head of the corporate and investment bank. The unit accounted for about 43 percent of the bank’s earnings between 2000 and 2011, according to an internal memo obtained by Bloomberg News last month.

Source: Bloomberg Businessweek