Profit Falls at French Bank Hit by Trading Scandal
PARIS — The French bank Societe Generale, which lost nearly 5 billion euros or $7.2 billion in a trading scandal earlier this year, said Tuesday that net profit fell 63 percent in the second quarter, on write-downs and after its investment banking unit posted a loss.
Net profit dropped to 644 million euros, or $1 billion, in the second quarter from a profit of 1.74 billion euros a year ago, the bank said in a statement.
For the first half, net was down 45 percent, to 1.74 billion euros from 3.17 billion euros a year earlier.
Still shares of Societe Generale, which have performed well in recent weeks, rose 5.5 percent in Paris trading after the net figures beat forecasts. A survey of analysts by Bloomberg News had estimated that net income would decline to 550 million euros.
The bank reported 575 million euros of write-downs on subprime-related debt, less than half the amount in the first quarter.
“There’s a kind of relief rally,” said Pascal Decque, an analyst that covers the bank for Natixis Securities in Paris. “The write-downs appear to be under some control — certainly compared to its U.S. peers. The open question is will it be enough? Is there more in the pipeline?”
Mr. Decque noted that the bank’s return on equity was close to 10 percent in the second quarter and that its tier-1 capital ratio — a common yardstick of a bank’s strength — was above the “magic number” of 6 percent.
The corporate and investment banking unit posted a loss of 186 million euros, compared with a profit of 721 million euros a year earlier, the bank said. Revenue in the second quarter was down 19 percent.
Three large French banks — Societe Generale, Credit Agricole and Natixis — have either raised capital to shore up their balance sheets in the face of losses related to the credit crisis, or they have announced plans to do so. BNP Paribas, which is due to report earnings Wednesday, has not done so.
Mr. Decque said the market was wary that there might be a disappointment with BNP Paribas earnings. Its shares are down 18 percent for the year to date.
BNP Paribas helped set off the global credit crisis almost a year ago by freezing three funds that invested in subprime debt.
Frederic Oudea, the chief executive of Societe Generale, said that during a first half “marked by a crisis on an exceptional scale, Societe Generale’s performance reflects the robustness of its portfolio of activities.”
He noted that core activities like retail banking and financial services, continued to grow, while global investment management made a positive contribution to net income, and said that corporate and investment banking had “generated very good business volumes.”
The bank, he added, would “take advantage of the quality of its customer franchises, its solid capital position and the commitment of all its employees to pursue its strategy despite an environment that is likely to remain difficult.”
A trading crisis that led to the 4.9 billion euro loss was booked in the fourth quarter last year. The bank also reported 2.05 billion euros in write-downs and provisions linked to the subprime crisis.
Since January, Societe Generale has engaged in a multifront effort to repair the damage from the scandal to its reputation and balance sheet. Under pressure from shareholders, the bank reshuffled its management.
Daniel Bouton, who remains chairman, relinquished his role as the chief executive to Mr. Oudea in May.
The bank also raised 5.5 billion euros from shareholders in new capital. And it is investing more than 100 million euros to upgrade its internal risk control systems.
A report leaked last week by France’s financial police said that Jerôme Kerviel, the former trader whom Societe Generale blames for losing the 5 billion euros, took advantage of his managers’ negligence to camouflage billions of euros in unauthorized bets.
The document contradicts the trader’s stance that his superiors knew what he was doing. Mr. Kerviel’s hearing will continue after the summer.
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