Societe Generale reports profits jump, strong capital base

3rd November 2010, Comments 0 comments

French bank Societe Generale surprised with a doubling of quarterly net profits on Wednesday and said its capital base would exceed new tough standards six years early.

The bank said it would achieve this without having to raise new capital.

The 110-percent rise in net profit to 896 million euros (1.254 billion dollars) in the third quarter from the equivalent figure last year reflected a reduction in provisions for bad loans.

Provisions have the effect of reducing taxable profit, but if they are unused they return to the profit line. Many banks made huge provisions for loans turning sour owing to the economic downturn last year.

The price of shares in the bank rose by 2.96 percent to 43.0 euros in initial trading. The overall French market has measured by the CAC 40 index showed a rise of 0.26 percent.

Other bank shares rose in response. Stock in BNP Paribas gained 1.30 percent to 52.89 euros, in Credit Agricole 0.79 percent to 12.06 euros and in Natixis by 0.99 percent to 4.39 euros.

The chief executive of Societe Generale, Frederic Oudea, said: "We will not need to raise capital. I rule it out because we have a strong outlook for the results."

Oudea said: "We are going to respect very strong financial discipline in the next two to three years."

He continued: "We are going to continue to finance our growth, but at a disciplined pace, four percent per year, so we will have to choose the areas which we want to see develop."

The net figure was much higher than the 716 million euros forecast by Dow Jones Newswires analysts.

"It's the confirmation of the recovery of Societe Generale," Oudea said on the financial news channel CNBC.

Societe Generale, which had to raise capital after nearly being bankrupted by a rogue-trader scandal shortly before the financial crisis rippled through the banking system, said it would get its base of top-class capital up to 7.5 percent of risks being carried at the beginning of 2013.

The new so-called Basel III bank capital standards were introduced in response to the near system failure of the US and European banking sectors.

They state that shareholders' capital plus retained earnings must amount to 7.0 percent of risks, or business, underwritten, and weighted by risk category, by stages from 2013 to 2019. The way risk categories are calculated has also been tightened up.

At the end of September, the so-called top level of capital amounted to 8.4 percent of risks underwritten but this was calculated on a less severe basis than will be the case under the Basel III standards.

Societe Generale said its capital base would rise to 7.5 percent at the beginning of 2013 and it expected the ratio to be 8.5 percent at the end of that year.

This would be achieved "without a capital increase, without taking into account the possibility that these standards might be spread out progressively and while maintaining payment of a a dividend of 35 percent (of net earnings)," the bank said.

But it added that it retained the option of paying dividend in the form of shares.

© 2010 AFP

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