French banks vow to avert negative outlook

PARIS - Reuters

Societe Generale has reported a halving of first-quarter net profit to 364 million euros ($476 million) and announced a plan to save 900 million euros by 2015. AFP photo

French banks Societe Generale and Credit Agricole vowed yesterday to keep cutting costs after asset sales and lending cutbacks helped to offset a weak domestic economy in the first quarter.

Banks across Europe are moving to slash spending and cut jobs in the face of tougher rules about capital levels and the uneven post-crisis economic recovery.

French bank Societe Generale reported yesterday that first-quarter net profit fell by half to 364 million euros ($476 million) and said it would save 900 million euros by 2015 with the loss of more than 1,000 jobs worldwide.

 SocGen, France’s second largest listed bank, aims to reach a new return-on-equity (ROE) target of 10 percent, an increase of 2.6 points.

Smaller listed rival Credit Agricole, which is more exposed to the French economy via its parent network of regional retail banks, reiterated its bid to cut 650 million euros by 2016.

French bank Credit Agricole SA raised net profit by more than half in the first quarter, it said yesterday, noting that it had cleaned up its balance sheet at the end of last year. In the first three months of the year, the bank, which is the quoted arm of the Credit Agricole holding group, raised net profit by 50.7 percent to 469 million euros ($613.5 million).

While both banks suffered from shrinking group revenues, rising French loan losses and market jitters over Cyprusand Italy in the quarter, they also cut overall expenses and booked gains from selling business units in a bid to shore up solvency.

“What is impressive is SocGen’s capacity to cut its cost base,” said Yohan Salleron, fund manager at Mandarine Gestion. “The target they announced is pretty significant.”

SocGen is in talks with unions to cut 620 staff at its central back-office operations, Chief Financial Officer Philippe Heim told journalists. Reuters exclusively reported last month that the bank was considering between 600 and 700 job cuts.

Larger domestic rival BNP Paribas, Germany’s Deutsche Bank and Switzerland’s UBS have also announced cost-saving plans to help fight the rising cost of doing business and the worsening economic outlook.

BNP leads the pack in terms of balance-sheet strength with a core Tier 1 capital ratio of 10 percent under tougher Basel III rules at end-March. Deutsche Bank has raised capital to reach 9.5 percent. SocGen expects to be at 9.5 percent by end-2013.

Credit Agricole’s fell to 8.5 percent from 9.2 percent as a result of interim regulation pending Basel III, which forces banks to count insurance exposure as equivalent to equity.

French woes

Yesterday SocGen reported a 50 percent drop in first-quarter net income to 364 million euros, hit by own-debt losses, a litigation provision of 100 million euros and a rise in French loan-loss provisions.

Several analysts said the results were better than expected, with investment-banking profits up 40.7 percent in the quarter - helped by a drop in costs and an increase in financing revenues - and with the group’s overall expenses down 6 percent.

“SocGen looks good, not just on the results but this cost savings plan is positive as well,” Espirito Santo banks analyst Andrew Lim said.

Credit Agricole, France’s No. 3 bank by market value, posted a 51 percent gain in quarterly profit thanks to a favorable comparison with a year-ago period weighed down by charges related to Greece.

“The results are better than expected because expenses and loan provisions were kept under control,” CM-CIC analyst Pierre Chedeville wrote in a note.