SocGen profit grows despite hit from CDS

SOCIETE Generale expects to post a small second-quarter net profit, helped by its corporate and investment banking division, the French bank said in a statement yesterday.

Net banking income would be hit by a negative impact of €1.3bn resulting from credit default swaps used to hedge its loan portfolio and debt instruments used by the group, the bank added.

“This was unexpected. The group says it will get a boost from its investment banking division, but I don’t think it is likely to see any advantages right away. Its cost of risk remains quite high,” said one Paris-based analyst who had estimated SocGen would post a slight quarterly loss.

The bank said the cost of risk would reach a level similar to the first quarter. The Tier 1 and Core Tier 1 ratios would be close to their 31 March levels pro forma of the issue of preference shares to the French state.

Societe Generale slumped to a surprise loss in the first quarter as higher-than-expected writedowns and provisions hit the bank’s earnings.

Chief executive Frederic Oudea said he did not expect any goodwill writedowns in the second quarter.

“Net income is expected to be slightly positive,” the bank said.

“Solid operational performances, in particular in Corporate & Investment Banking, will absorb the significant negative impact on the accounts of the substantial tightening of credit spreads stemming from an improving market environment and reduced aversion to risk since mid-March,” it added.

Oudea added that there were no plans for the state to increase its stake in the French bank.

Shareholders have voted with a majority of 80 per cent to approve Oudea’s appointment as chairman in addition to being CEO, replacing Daniel Bouton who was forced out after constant public criticism over the bank’s record trading losses.