SOCIETE GENERALE PROFIT RISES ON RETAIL BANKING, LOWER LOAN LOSSES / THE WALL STREET JOURNAL ( RECOMMENDED READING )

EARNINGS

FEBRUARY 16, 2011, 5:43 A.M. ET.

Société Générale Profit Rises on Retail Banking, Lower Loan Losses 

By ELENA BERTON

PARIS—-Société Générale SA Wednesday said fourth-quarter net profit almost quadrupled from a year earlier as the French lender continued its recovery from the financial crisis, helped by strong retail banking, a rebound at its corporate investment bank and smaller bad loan provisions.


Net profit in the three months to Dec. 31 rose to €874 million ($1.18 billion) from €221 million in the same period a year earlier, when charges against risky assets ate into earnings. Revenue in the quarter rose 34% to €6.85 billion from €5.13 billion a year earlier, as corporate investment banking revenue doubled despite concerns of a fresh European sovereign-debt crisis in November.


France's second-largest listed lender after BNP Paribas SA reconfirmed the goal it set last year of achieving net income of around €6 billion in 2012.


Provisions for bad loans continued to shrink across all units as the economy improved, with sharp declines in Russia and the Czech republic. However, provisions for bad loans remained high in Greece and increased in Romania, reflecting a deteriorating economy in those countries. Overall provisions fell to €4.2 billion in 2010 from €5.8 billion in 2009.

Société Générale is the first French bank to report earnings for the quarter. BNP Paribas reports on Thursday, and Crédit Agricole SA, the country's third-largest bank by market value, follows next week.


The bank said it will evaluate any eventual financial repercussions on its Egyptian unit, National Société Générale Bank, at the end of the first quarter. Some analysts had expected the bank to book provisions of around €100 million in the fourth quarter, as lenders were forced to shut down their branches after protests spread across the country.


Société Générale said the latest developments in Egypt and Tunisia won't change its strategy for North Africa, where it's keen on expanding its business.


French banks have a combined $52.3 billion of loans in Algeria, Egypt, Libya, Morocco and Tunisia, according to data from the Bank for International Settlements.


Société Générale's Tier 1 capital ratio—a key measure of a lender's capital strength, consisting of equity, preferred shares and retained earnings—was 10.6% at the end of December, while the core Tier 1 ratio, which consists of only top quality capital such as equity and retained profits, was 8.5%.


The bank reiterated that it will be able to comply with new international banking rules, known as Basel III, and reach a core Tier 1 ratio of around 8.5% by end 2013 without a capital increase.


According to the new rules, which will be phased in from January 2013 through to January 2019, banks will have to hold at least 7% of top-quality capital in reserve as a cushion against any future financial crises.


Société Générale bank is proposing a €1.75 dividend for the year with the option for shareholders to receive shares instead of cash, compared with €0.25 in 2009.


Nomura analyst Jon Peace said in a note to investors that the bank's fourth-quarter results are in-line with expectations, but added that high investment costs in corporate investment banking as well as the higher cost of risk in Greece and Romania were disappointing.


"We think that [shares] look vulnerable today to some profit-taking given the divisional mix of positives and negatives," said Mr. Peace.


For 2011, Société Générale said it expects a mixed global recovery that will be moderate in developed countries and stronger in emerging markets, but "with an inflation risk that needs to be monitored."


Société Générale's shares, which have risen around 25% in the last 12 months as the bank recovered from the financial crisis, closed Tuesday at €48.87.


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