SocGen Holds Newedge Talks With Agricole as Profits Miss
Societe Generale SA and Credit Agricole SA (ACA), two of France’s biggest banks, reported earnings that missed analysts’ estimates and said they were in talks to swap stakes in derivatives broker Newedge Group and asset manager Amundi Group.
Societe Generale, the country’s second-largest bank by market value, said today that third-quarter net income rose almost six-fold to 534 million euros ($722 million) from a year earlier, missing the 635 million-euro average estimate of eight analysts surveyed by Bloomberg. Credit Agricole posted profit of 728 million euros, below the 879 million-euro estimate of analysts, after reporting a 2.85 billion-euro loss a year ago.
French banks are dealing with the aftermath of the deepest global financial crisis since the 1930’s, booking costs for shrinking operations and setting aside provisions for bad loans and litigation. Credit Agricole plans to increase its stake in Amundi to 80 percent from 75 percent, while Societe Generale (GLE) would double its share of Newedge to 100 percent, they said.
Sole ownership of Newedge “will offer us an opportunity to grow our fixed-income activities, our geographical footprint and to develop new synergies” in revenues and costs, Deputy Chief Executive Officer Severin Cabannes said in an interview with Bloomberg Television.
Litigation Expenses
Societe Generale’s shares rose 0.6 percent to 40.57 euros yesterday, valuing the company at 32.4 billion euros. The stock climbed 43 percent this year compared with a 17 percent gain for the Bloomberg Europe Banks & Financial Services Index. Credit Agricole advanced 0.6 percent yesterday, taking its increase this year to 45 percent.
Societe Generale said the provisions it makes for items such as litigation and non-performing loans increased to 1.09 billion euros in the third quarter from 897 million euros a year earlier, as it set aside an additional 200 million euros for legal expenses.
Regulators around the world are investigating whether more than a dozen firms colluded to rig various benchmark rates to mask their true cost of borrowing.
Euribor Rejection
Credit Agricole CEO Jean-Paul Chifflet, speaking on a call with journalists, said the bank has rejected a deal with European authorities over alleged Euribor manipulation.
“We have a very good case,” said Chifflet, 64. “I’ve refused a settlement because it could have put into question our responsibility.”
Societe Generale’s core Tier 1 capital adequacy ratio under Basel 3 rules, a key measure of financial strength, increased to 9.9 percent at the end of September from 9.4 percent in June. The leverage ratio — or equity as a proportion of total assets — was 3.3 percent under Basel 3, the bank said.
Profit from the French consumer-banking network fell 12 percent to 308 million euros in the third quarter from a year ago as provisions increased 22 percent, Societe Generale said. It cited a “still challenging macro-economic environment.”
Net income from international consumer banking declined 25 percent to 84 million euros as operating revenue fell, it said.
Societe Generale is planning to cut 375 jobs at its securities services business, which includes custody and depositary services, according to a document on the website of the CFDT labor union. The plan would include transferring some fund-administration positions to Bangalore,India, according to the union.
Newedge Stake
Societe Generale is in talks with unions about “making adjustments for the future,” CEO Frederic Oudea said on an interview with BFM radio today.
Credit Agricole said its third-quarter earnings were hit by a charge of 155 million euros it made in preparation for the sale of the 50 percent stake in derivatives broker Newedge.
Newedge has cut jobs and reduced costs to offset declining trading volumes. Credit Agricole’s exit is part of a strategy by its corporate and investment banking unit to exit brokerage activities.
The bank, which has France’s largest branch network and consumer-banking units in Italy, said provisions for bad loans decreased 32 percent to 653 million euros in the third quarter.
Credit Agricole Group, which regulators and rating companies look at for compliance with international rules, had a common equity Tier 1 capital ratio under fully-applied Basel III standards of 10.5 percent at the end of September, up from 10 percent at the end of June, the bank said.
Source: Bloomberg
