SocGen surpasses expectations with bond trading offsetting retail banking decline.

Societe Generale Posts Better Than Expected Quarterly Earnings

French bank Societe Generale has reported better than expected quarterly earnings, thanks to a boost in its trading business due to turmoil in bond and currency markets. The bank’s net income in the first quarter of 2019 rose 5.7% from the previous year to €868m ($955.5m), almost double the average of four analyst estimates compiled by Refinitiv. High volatility in interest rates and currencies drove demand for hedging in the quarter, boosting revenue from trading in fixed income and currency by 16%. However, the bank’s French retail division saw a slump in earnings due to stricter interest rate caps on mortgages and other loans.

Investment Bank Chief to Take the Helm

The results come less than two weeks before investment bank chief Slawomir Krupa takes the helm. The incoming CEO is tasked with reviving the valuation of France’s third-largest listed bank after years of restructurings and lacklustre performance. Krupa is set to present a new strategic plan in the third quarter.

Retail Banking Woes

Sales at Societe Generale’s French retail business plummeted 11% in the quarter while group revenue fell 5.3% to about €6.7bn. In addition to the caps on lending rates, the bank has also been squeezed by a government-imposed increase to the savings rates paid on the most popular savings accounts offered by French banks, called Livret A. The phasing out of a cheap long-term loan programme by the European Central Bank also weighed on results. Societe Generale is unlikely to reap the benefits of rising interest rates in its French retail activity before 2024, the company said.

Positive Outlook

Despite the challenges faced by the bank’s retail division, Societe Generale maintained its 2025 financial targets, including a cost to income ratio below 62% and an expected return on tangible equity of 10%. The bank also said it would set aside less money for soured loans this year than initially planned. It now expects the so-called “cost of risk” to be below 30 basis points this year, down from previous guidance of 30-35 points.

Key Takeaways

• Societe Generale’s net income in Q1 2019 rose 5.7% from the previous year to €868m ($955.5m).
• Revenue from trading in fixed income and currency rose by 16% due to high volatility in interest rates and currencies.
• The bank’s French retail division saw a slump in earnings due to stricter interest rate caps on mortgages and other loans.
• The incoming CEO, Slawomir Krupa, is set to present a new strategic plan in the third quarter.
• Societe Generale maintained its 2025 financial targets, including a cost to income ratio below 62% and an expected return on tangible equity of 10%.