Société Générale Profit Rises as Loan Problems Recede

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The headquarters of Societe Generale in La Defense near Paris.Credit Christian Hartmann/Reuters

Société Générale, France’s second-largest bank after BNP Paribas, reported a 7.8 percent rise in second-quarter earnings on Friday as it benefited from a decline in its exposure to risky loans.

The bank said that net income for the three months ended June 30 was 1.03 billion euros, or $1.38 billion, compared with €955 million in the same period a year ago.

Earlier this year, Société Générale laid out plans to achieve annual growth of 3 percent between 2014 and 2016, and a return of equity of more than 10 percent over the next three years.

The company said on Friday that its return on equity rose to 8.8 percent in the second quarter, and that it had booked a 24 percent decline, to €752 million, in financial provisions to cover exposure to potential risky loans. It also benefited from the recent acquisition of the 50 percent stake that it did not already own of Newedge Group, a derivatives brokerage.

“We confirmed the group’s growth potential and our ability to improve our profitability,” Frédéric Oudéa, Société Générale’s chairman and chief executive, said in a statement on Friday.

Shares in the bank fell 2.4 percent in morning trading in Paris.

Despite the bank’s improving profitability, it still faces a number of potential risks, including exposure in Russia, where Société Générale recently increased its stake in Rosbank. The French bank bought an 82 percent stake in the Russian lender in 2006, and increased its holding to almost 100 in April.

The bank’s net income from its retail banking operations in that country fell 36 percent, to €16 million in the quarter.

In the most recent round of sanctions against Russia in response to the continuing crisis in Ukraine, the European Union has banned companies or citizens from any of the 28-member countries to buy or sell new bonds, equities or other financial instruments with a maturity of more than three months issued by Russia’s state-owned banks or financial institutions.

The sanctions, however, do not affect Société Générale’s operations in Russia.

“There are no signs at this stage of the impact of geopolitical risk related to Russia and Ukraine,” banking analysts at Banco Espírito Santo in London told investors in a research note on Friday.

Société Générale also said that it had made a further €200 million provision for unspecified future litigation costs. The bank has now set aside a combined €900 million for potential legal issues.

The French financial giant is among several international lenders that have been accused of breaking sanctions by providing banking services to countries blacklisted by the United States.  Its national rival, BNP Paribas, agreed in June to pay a record $8.9 billion fine for similar charges.

Last year, Société Générale also agreed to pay a €370 million fine related to the alleged rigging of European benchmark interest rates, though the bank has since appealed the ruling on the grounds that regulators may have miscalculated the size of the penalty.

The bank said that second-quarter net income in its global banking and investor solutions unit, which includes investment and private banking, increased 28 percent, to €585 million, from the same period last year.

Net income from its international retail banking division also jumped 31 percent, to €318 million, while profit from its French retail banking unit rose 2 percent, to €336 million.

Société Générale’s common Tier 1 equity, a measure of a bank’s ability to weather financial shocks, now stands at 10.2 percent, which is higher than what has been demanded by international regulators.