Societe Generale, France's third-biggest listed bank, missed market expectations on quarterly sales today, as a slump of its French retail added to earnings woes in spite of the resilient performance of its investment bank division.
Group revenues dropped by 6.2% from a year earlier to about €6.2 billion, below a €6.3 billion average of 13 analyst estimates compiled by the company.
Stringent French rules on mortgage rate-fixing, combined with a government-fixed remuneration rate on the country's most popular savings account have limited the benefits of higher rates on French banks' net interest income (NII) - earnings on loans minus the cost of deposits.
NII at the French retail division fell by 27% in the quarter, excluding two regulated savings accounts, "well below expectations," JP Morgan said in a note to clients.
The French lender said it now saw NII of its French retail, private banking and insurance division falling by more than 20% in 2023. Next year, it expects the same key metric to be higher or equal to the 2022 amount.
The French retail division's quarterly earnings also decreased because of hedging contracts to cover against the risks of low interest rates. That negative effect peaked in the third quarter, SocGen said.
Group net income came in at €295m, above the €168m analyst consensus.
It was down 80% from a year earlier, as the bank booked €340m in write-downs tied to some of its activities on top of a €270m provision for deferred tax assets.
Both hits to SocGen's bottom line had been flagged at the bank's investor day in September.
Jefferies called SocGen's set of quarterly earnings "dull", marked by a mixed bag of results.
SocGen's CEO Slawomir Krupa, who took the reins of the company in May, is striving to revive the bank's shares by delivering on the cost-cutting and conservative targets he set out in September.
But his mid-term targets, which include a meager annual revenue growth target of 0-2% by 2026, were deemed disappointing by investors who expected higher returns to shareholders, sending shares down by more than 10%.
The current year, dubbed a year of "transition" by SocGen, is marked by the costly integration of car-leasing company LeasePlan by the bank's listed rival ALD, under the brand Ayvens. The bank has also finalised the merger of its two French retail networks.
The two transactions have weighed on costs, at a time when the French retail market, in stark contrast with other European countries, yields lower margins even as interest rates have risen at the fastest pace in recent history.
In this context, the 0.4% drop in sales seen at SocGen's investment bank, compares well with some of its European peers.
Revenue from trading in fixed income and securities was down 4.6%, outperforming bigger French rival BNP Paribas, Deutsche Bank and Barclays as less volatile financial markets dent investment banks' earnings.
The corporate financing and advisory business saw sales up by 2.1%, helping propel the division's net profit, which was up 7.7% over the period.
SocGen cut the full-year target for its cost of risk - money set aside for bad loans - to "below 20 basis points", down from a guidance of below 30 basis points.
