SocGen's strong first quarter bolsters CEO's turnaround plan

By Mathieu Rosemain

PARIS -Societe Generale beat first-quarter expectations, lifted by retail banking and equities trading, in a boost for CEO Slawomir Krupa's turnaround drive as the French bank navigates turbulent market conditions.

Krupa has embarked the lender on a cost-cutting and asset disposal plan that, after initially failing to restore investor confidence following years of lacklustre performance, now appears to be bearing fruit.

First-quarter group net income more than doubled from a year earlier to 1.61 billion euros ($1.84 billion) thanks to one-off gains from asset sales, France's third-biggest listed lender said on Wednesday, exceeding by about 400 million euros the average estimate of analysts compiled by the company.

Revenues rose 6.6% to 7.1 billion euros, driven by strong growth in the bank’s equities business amid volatile markets — a trend Krupa expects to continue benefiting the lender.

"The current environment brings its share of uncertainties, and our trajectory will not always be perfectly linear. But our course is clear," he told journalists.

The bank said its return on tangible equity - a key measure of profitability that at SocGen has long lagged rivals - was 11% in the first quarter, ahead of its full-year target of 8%.

Analysts at Jefferies said SocGen's results ticked the right boxes.

SocGen shares were up by more than 4% in early Paris trading, touching a 7-year high and extending a rally that has seen the stock gain over 80% in the past twelve months, outperforming peer BNP Paribas and the broader European banking sector.

Like other banks reporting this week, Krupa said SocGen was sticking with its targets for this year. 

European lenders have so far shrugged off any major concerns about the economic fallout from U.S. President Donald Trump's trade war and most listed banks have recovered nearly all of the big drop in their share prices in early April.

RETAIL RECOVERS

SocGen's French retail division saw its quarterly net interest income - the difference between what banks earn on loans and what they pay on deposits - jump by 28% year-on-year, driven by a more than doubling of mortgage loan issuance. 

The French government's decision to cut interest rates on widely-used regulated savings accounts also offered some relief.

The Paris-based lender's equities business increased sales by 22%, similar to the gains recorded by Wall Street banks but about half the increase at BNP Paribas. 

Sales from trading in fixed income and currencies, however, dropped 2.4%, SocGen said. 

Overall, the group's investment banking division, its biggest, grew by 10% in the first quarter, beating expectations. 

The bank's cost-to-income ratio - a key measure of efficiency - came in at 65%, against a full-year target of below 66%. It is still far above European average levels, according to data from the European Banking Authority.

($1 = 0.8761 euros)  

(Reporting by Mathieu Rosemain;Additional reporting by Bertrand de Meyer, Piotr Lipinski and Sinead Cruise;Editing by Tommy Reggiori Wilkes, Ingrid Melander and Elaine Hardcastle)