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PARIS, Aug 3 (Reuters) – Societe Generale (SOGN.PA), France’s third-biggest listed bank, reported better-than-expected quarterly earnings on Thursday, as cost management and low provisions for bad loans alleviated a steep fall in margins at its retail branch.
SocGen reported a 900 million-euro ($984 million) group net income for the three months-period ending in June, above the average analyst estimate compiled by the company of 670 million euros.
The beat was underpinned by lower-than-expected “cost of risk” — money set aside for failing loans — of 166 million euros in the second quarter, while the markets expected more than twice that figure, or 430 million euros.
“The cost of risk was very low, reflecting the quality of our origination and our loan portfolio,” said Chief Executive Slawomir Krupa, who was unveiling his first quarterly results in his new role.
The bank, which confirmed its full-year objectives, didn’t mention longer-term targets, as all eyes are now set on Sept. 18, when Krupa will present a strategic plan.
It will be a key test for the company veteran, tasked with reviving the bank’s stock after years of lackluster performance and a painful exit from Russia.
“Cost control in Q2 was encouraging but is also a reflection of weaker revenues,” Royal Bank of Canada analysts said in a note.
Dubbed a “year of transition” by Krupa’s predecessor Frederic Oudea, 2023 is also marked by a severe downturn at SocGen’s French retail banking division, fresh off a merger of its two local networks.
The division reported a 14% fall in revenues in the second quarter, contributing to worse-than-expected group sales of 6.29 billion euros, down 8.9% from a year earlier.
France’s stringent mortgage rules, marked by caps on lending rates, weigh on banks’ margins, as does the most popular savings account, Livret A, whose rate is set by the government.
The phasing out of a cheap long-term loan programme by the European Central Bank also adds an extra burden. SocGen’s second-quarter net income almost halved from a year earlier, it said.
ITALY’S BANKS FARE BETTER
The French retail division’s results contrasted with Italy’s banking sector, where the top two lenders – Intesa Sanpaolo(ISP.MI) and UniCredit(CRDI.MI) – posted much stronger than expected earnings, boosted by the stronger interest rates.
The retail branch’s woes came on top of a slowdown of its investment bank unit in the quarter, as its profitable trading business was affected by a less volatile environment.
Revenue from trading in fixed income and currency sinked by 18.4% in the second-quarter, while its equivalent for equities retreated by 5.8%.
The second quarter was also affected by negative exceptional items of 240 million euros, which Credit Suisse said were tied to “legacy legal disputes”.
Retail banking outside France fared better, as did SocGen’s car leasing division ALD Automotive (ALDA.PA), whose sales jumped by more than 17% thanks to the acquisition of rival LeasePlan.
SocGen said it was launching the 440 million-euro share buyback programme announced earlier this year.
($1 = 0.9145 euros)
Reporting by Mathieu Rosemain;
Additional reporting by Augustin Turpin;
Editing by Ingrid Melander
Our Standards: The Thomson Reuters Trust Principles.
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