French bank Societe Generale reported a 20.1 per cent drop in quarterly net profit, as the cost of selling assets in a weak economy and other one-off charges offset a surprise surge in bonds, currencies and commodities revenue.
Like European peers, France's second-biggest lender is slashing costs, debt and jobs at its key investment banking division to meet tougher global bank rules and better resist the fallout from the euro zone's sovereign debt crisis.
Although this drive to build capital hurt earnings, analysts noted strong underlying operations such as a 39 per cent jump in fixed-income revenue - defying expectations of a drop-off from its strong performance a year ago.
"The results were pretty strong, said Tom Van Kempen, analyst at ING. "Operations were good and there was positive news on capital. Fixed income came as a surprise, they might have reallocated resources to those activities." Shares in Socgen rose 4.3 per cent to €18.80 in early trade.
SocGen and larger rival BNP Paribas, which have been cutting their exposure to the 17-nation euro zone while lending more at home, are still treated as proxies for the euro and their share prices have suffered as market fears intensify over Spain's recession-wracked economy. BNP Paribas is set to report results on Friday.
Citing the rebound in financial markets between January and March - which was driven by the European Central Bank's unprecedented injection of cheap funds into the banking system - SocGen chief executive Frederic Oudea said there had not been a marked deterioration since. "Overall, April remained pretty good, pretty decent...In credit risk, we see no deterioration," he said.
SocGen reported net income of €732 million. Analysts had been forecasting €748.1 million. Revenue fell 4.7 per cent to €6.3 billion.
The bank sold €6.4 billion worth of loan assets during the first quarter to cut debt, which came at a cost but nonetheless pushed up its core European Banking Authority Tier 1 capital ratio - a key metric of banks' ability to withstand losses - to 9.4 per cent.
Although the focus on capital hit investment banking earnings the hardest, SocGen has also started to feel the pinch at its 3,250-plus retail branches in France, which saw profits fall year-on-year for the first time since 2010. The French economy is slowing down and unemployment is at a 12-year high.
Reuters
