Societe Generale posts 63% drop in Q2 net profit

Societe Generale posted a 63 per cent fall in second-quarter net profit yesterday, hit by losses at its corporate and investment banking unit, but the results beat most analysts' expectations.

France's second-biggest listed bank, victim to the world's worst rogue trader scandal earlier this year, said net profit fell to €644 million (Dh3.6 billion).

Last year it made a net profit of €1.74bn. Eighteen analysts polled by Reuters had given an average net profit forecast of €518m.

Gross operating profit fell 42 per cent to €1.627bn, also ahead of analysts' average forecast of €1.333bn.

"The results were better than expected. The investment banking arm has not done as badly as feared," said Valerie Cazaban, fund manager at Stratege Finance, which owns SocGen shares.

SocGen had higher profits at its international retail banking and consumer credit businesses, which helped counter the investment banking loss.

Earnings were also boosted by a €262m capital gain on the sale of its stake in Bank Muscat.

Its investment banking division took a €1.2bn hit due to the credit crunch, suffering write-downs on credit default swaps and credit derivatives.

However, Cazaban said this compared favourably with results at other banks, such as Merrill Lynch and Citigroup, which posted huge second-quarter losses last month.

"Overall, I would say it is a satisfying performance, given the environment," West LB analyst Christoph Bossmann said.

He kept a "hold" rating on SocGen shares.

SocGen is trying to battle back from the effect of the rogue trading scandal. In January, the bank unveiled €4.9bn of losses it said were caused by unauthorised deals carried out by Jerome Kerviel, a 31-year-old junior trader at the bank.

Kerviel was freed from prison in March after an appeal against his detention but he remains under formal investigation for breach of trust, computer abuse and falsification.

On Monday, the Paris prosecutor's office said it had placed Kerviel's former assistant under investigation for complicity in the affair.

A legal source briefed on the matter said the assistant was 24-year-old Thomas Mougard. The losses from the Kerviel affair forced SocGen to raise €5.5bn through a rights issue and led many banking analysts to regard the bank as a takeover target, though SocGen has consistently said it aims to remain independent.

BNP Paribas considered bidding for SocGen this year but ultimately ruled it out. BNP had tried to buy SocGen in 1999.