By Mathieu Rosemain
PARIS (Reuters) -Societe Generale cut a key target for its French retail division on Thursday, overshadowing a quarterly earnings beat and sending the French bank’s shares tumbling.
Shares of France’s third-biggest listed bank by market value were down by more than 7% in early Paris trading, losing more ground against European rivals, which they have lagged since the start of the year.
CEO Slawomir Krupa, who has promised to improve the group’s share performance, declined to comment on the stock price move on Thursday after the publication of the lender’s second-quarter results.
The bank reported net income jumped by 24% from a year earlier to 1.11 billion euros ($1.20 billion), beating the 973 million-euro median average of 16 analyst estimates compiled by the company.
Yet neither the better earnings nor higher-than-expected sales from SocGen’s investment banking unit, driven by a 24% jump in the equities trading business, were enough to mitigate the disappointment over the group’s French retail business outlook.
SocGen’s said it now expected retail net interest income – the difference between what banks earn on loans and what they pay out for deposits – sees at 3.8 billion euros in 2024, 300 million euros less than previously expected.
“Key new news today is the French retail miss & guidance cut for French NII this year, which we think will burden the shares,” Barclays said.
The target miss comes after a miscalculated and costly hedging policy aimed at protecting the bank against low interest rates that rolled off in the second quarter, whose underlying performance in the field also came lower than expected.
‘TIGHT SHIP’
Krupa, who pledged to boost profits and capital by cutting costs and getting rid of some non-core assets, had already spooked investors last year by targeting a meagre yearly average sales growth of up to 2% over the 2022-2026 period, while aiming for a return on tangible equity between 9 and 10% in 2026.
Several analysts doubt that profitability target will be achieved.
Krupa said last year he intended to run a “tight ship” in terms of portfolio of assets, which translated into a significant retreat from Africa and the disposal of its equipment finance division SGEF.
Those moves, aimed at bolstering the bank’s capital, raised the group’s yearly targets for CET1, a key measure of financial strength, which SocGen said it now sees it above 13% this year, compared with a previous target of around 13%.
The bank reported its second-quarter group revenues grew by 6.3% to 6.69 billion euros, above the 6.59 billion-euro median average forecast.
The bank’s shares are now down about 7.5% so far this year, compared with a close to a 19% gain for the banking sector European benchmark . SocGen shares trade at less than 30% of its book value as it suffers more than its French competitors from the uncertainties created by the snap parliamentary elections in the country.
This valuation is comparable with that of Raiffeisen Bank International, the Austrian bank that has been under pressure from authorities on both sides of the Atlantic to reduce its large footprint in Russia following the invasion of Ukraine.
By contrast, SocGen’s bigger French rival BNP Paribas trades at almost 60% its book value, while Italy’s UniCredit and Spain’s BBVA at more than 100%.
($1 = 0.9240 euros)
(Reporting by Mathieu Rosemain;Editing by Anousha Sakoui and Tomasz Janowski)
