Société Générale boasted strong third-quarter results as the French bank looks to move past its US legal troubles and convince investors it has turned a corner.
The lender’s profits beat expectations after booking a large capital gain on its stake in Euroclear, one of the world’s largest securities depositories.
SocGen recorded a 32 per cent increase in net income to €1.23bn over the same quarter last year — well ahead of the €917m expected by analysts, according to Reuters data. The revaluation of Euroclear provided a €271m boost.
The group’s revenues also beat expectations, rising 9.6 per cent to €6.53bn. Excluding one-offs, said Citi, revenues were 4 per cent ahead of consensus. SocGen’s return on tangible equity hit 11 per cent.
Analysts were largely cheered by the results but warned that the underlying numbers were not as positive and the bank would need to demonstrate strength over a longer period.
SocGen’s shares had gained 3 per cent by lunchtime in Paris, but remain down 20 per cent this year as Europe’s banks have struggled more broadly amid concerns about persistently low rates and exposures to Italy and Turkey.
Credit Suisse analysts said that “versus low expectations we think investors should welcome some improved trends”, but Maxence Le Gouvello Du Timat at Jefferies argued SocGen “would need to see a strong performance over consecutive quarters”.
While noting underlying pre-tax profit had beaten expectations by 10 per cent, Deutsche Bank’s Flora Benhakoun said that since “this is mostly on the back of the non-strategic corporate centre”, the results “will likely be deemed ‘low quality’ and ‘unsustainable’.”
SocGen put its gains, outside of Euroclear, down to a strong performance by international retail and financial services, a rebound in global markets and “strong momentum in financing and advisory”.
French retail banking revenues were up 1.8 per cent, but against a low base in 2017.
SocGen’s core but previously troubled equities trading division saw revenues up 19 per cent “due primarily to the good performance in the United States and in structured products”. The bank has recently hired a new head of equity derivatives from Bank of America Merrill Lynch.
Revenues from fixed income, currencies and commodities trading were stable. Two of SocGen’s French rivals, BNP Paribas and Crédit Agricole, have already recorded third-quarter FICC trading revenues falls.
SocGen, which has long been under legal clouds, added €136m to its provisions for disputes, which now total €1.58bn, saying the “expected financial cost” of the future settlement of a pending US sanctions case “is fully covered”.
Fréderic Oudéa, SocGen chief executive, said: “We have put behind us in this quarter the financial impact of our three US litigations and we have no litigation going forward which can have a significant impact going forward in our pnl [bottom line].”
The lender said in September it had entered into “a phase of more active discussions” with US authorities over the sanctions allegations and could reach an agreement in the “coming weeks”.
SocGen had already settled charges relating to a bribery scheme involving the Libyan Investment Authority and manipulation of the Libor benchmark interest rate that saw deputy chief executive Didier Valet leave the bank.
The bank’s common equity tier 1 ratio stood at 11.2 per cent, up 8 basis points from the end of June and in line with expectations. Mr Oudéa confirmed SocGen’s CET1 target of 12 per cent by 2020.