Societe Generale announced its second quarter 2023 results.
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French bank Societe Generale First-quarter net profit reported on Friday fell 22%, weaker than expected, as profits from equity derivatives sales offset more weakness in retail banking and fixed-income trading.
France’s third-largest listed bank, whose chief executive Slawomir Krupa is seeking to end years of underperformance and cut costs, said group net profit fell in the first three months of the year. Profit was 680 million euros ($729.3 million).
The figure was down 22% from the same period last year but was still higher than the 463 million euro average forecast by the company’s 15 analysts.
Sales fell 0.4% to 6.65 billion euros, higher than analysts’ average estimate of 6.46 billion euros.
Thanks to Eurozone interest rates that have continued to be higher than expected, many European banks’ first-quarter results exceeded expectations, and some banks also raised their full-year profit targets.
French banks, including Société Générale, have not benefited much from higher interest rates due to higher deposit costs in the country. Although analysts expect these banks to perform better when interest rates fall, their stock prices have underperformed.
Societe Generale’s investment banking unit’s profit increased by 26.4% to 690 million euros, exceeding expectations. Revenue for the quarter fell by 5.1% to 2.62 billion euros.
Société Générale’s historically strong area of equity derivatives sales performed well, as did corporate finance services and its advisory business, the bank said.
Hedging policy
This offset a 17% decline in fixed income and currency trading sales, underperforming the average of Wall Street firms and French rivals BNP Paribas. Deutsche Bank Fixed income and currency trading revenue grew 7%.
Société Générale said it continues to suffer from costly hedging policies designed to protect the bank from low interest rates that have backfired. Societe Generale’s costs in the first quarter were 300 million euros, while costs in 2023 were 1.6 billion euros.
The bank no longer reports figures for its French retail business, which as a stand-alone business was more important to its earnings than BNP Paribas.
Societe Generale said a shift from demand deposits to fixed-rate regulated savings accounts weighed on its performance.
When interest rates are negative, French deposits are the most expensive in Europe, according to a recent UBS study. But when interest rates and inflation rise, their costs grow as fast as the European average.
Société Générale has lagged its peers over the past three years, with shares up 9%, BNP Paribas up 26% and Banque de France up 13.5%. Credit Agricultural Bank of China. The Stoxx Europe basket of 600 banks rose 55% over the period.
Krupa, just a year into his job, disappointed investors last September when he pushed back a key profit target by a year to 2026 as sales stalled.
He has pledged to revive the share price by cutting costs and hitting targets, while selling non-core assets and investing in his online bank BoursoBank and an expanded listed car rental group Ayvens.
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