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SocGen profit hit by Arab world unrest

Paris, May 5, 2011

Societe Generale, France's second-biggest listed bank, posted lower than expected first-quarter results on Thursday after a markdown on its own debt and turmoil in the Arab world ate into profits.   

The bank is among the most exposed in Europe to Egypt and North Africa, where political upheavals hit business activity and led to a 61 percent slide in international retail earnings.

'We had an impact of the turmoil in Ivory Coast, in Egypt and in Tunisia,' SocGen chief executive Frederic Oudea told CNBC. Banks that had been closed were now open again, he said.

Oudea has promised to boost earnings and meet tougher regulation without striking a big merger. CNBC said SocGen was sticking to its 2012 net profit target of 6 billion euros.

Net profit for the quarter fell 13.8 percent to 916 million euros ($1.28 billion). The average estimate given in a Reuters analyst poll was 1.06 billion. Revenue ticked up slightly to 6.62 billion euros but was also below expectations of 6.73 billion.   

Stripping out the impact of tightening spreads on the value of its debt, which the bank pegged at 239 million euros after tax, revenue rose 7.7 percent and earnings were up 9.8 percent.

Larger arch-rival BNP Paribas beat first-quarter forecasts on Wednesday with a net profit of 2.62 billion euros, or almost three times SocGen's earnings for the same period.

SocGen's key investment banking division accounted for nearly two-thirds of group earnings in the quarter, with strong corporate financing and equity derivatives offsetting the impact of eurozone jitters, Middle East turmoil and the Japan tsunami.   

SocGen also outperformed on home turf, with demand for mortgages and loan growth boosting French retail profits. But the bank's international retail division, which includes subsidiaries in Eastern Europe, Greece and the Arab world, posted an earnings slump of 61 percent. Upheavals in Egypt, Tunisia and Ivory Coast led to extra provisions, while inflation in Russia pushed up expenses year-on-year.

'It's a really mixed bag ... There were good results in French retail and corporate and investment banking but that could not offset the weakness in international retail banking, which was more pronounced than expected,' WestLB analyst Christoph Bossmann said.

Peers including Barclays, Credit Suisse and UBS saw investment banking profit fall 15-30 percent in the first quarter. SocGen's investment bank, which was less exposed to fixed-income troubles, lifted earnings by 9.2 percent overall.   

At end-March, SocGen's core Tier 1 capital ratio was 8.8 percent, up from 8.5 percent a year ago but some way behind larger rival BNP Paribas' ratio of 9.5. - Reuters




Tags: Egypt | profit | Tunisia | arab | SocGen |

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