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SocGen profits slide but beat estimates with a boost from bond trading operations

Société Générale shares opened almost five percent higher after the French bank posted a 2.4 percent year-on-year slide in third-quarter net income on Thursday to 1.1 billion euros ($1.2 billion), but managed to deliver a strong beat on analyst consensus which anticipated a 745 million euro figure.

This result comes on the back of a robust performance from its fixed income trading operations, buoyed by the rise in bond trading and volatility during the quarter. Adjusted group net profit actually saw a rise of 39 percent from the same period last year and shares of the French bank were nearly 5 percent higher as the European session began on Thursday.


Societe Generale SA headquarters in Paris, France.
Balint Porneczi | Bloomberg | Getty Images
Societe Generale SA headquarters in Paris, France.

Deputy CEO Séverin Cabannes told CNBC he was not worried that this source of income was provided by a temporary boost.

"This quarter has benefited from strong activity in rates and credit but also from new demand in structured products for investors. We don't expect a change in the environment for the next period of time," he said.

Weakness in third-quarter results for the French bank lay in is domestic retail revenue which came in 15 percent lower than during the same period last year. Addressing the absolute level of record low interest rates and the effect they were having on the bank's ability to generate revenue, Cabannes added:

"Our central scenario is low interest rates for long, clearly. Our global sensitivity on negative interest rates is limited to mainly our French retail activity. There is a pressure on the revenue side due to negative interest rates in France."

Further acknowledging pressures on Société Générale's net interest margin during the first 9 months of 2016, Cabannes warned, "We don't expect significant improvement for the next period of time."

According to a report from the research team at UBS, "The market should be pleased by this set of results we think."

Analysts at the Swiss bank see around a 2.4 percent lift in Société Générale's stock price over the next twelve months but warn of a number of potential challenges to this forecast.

"Key downside risks to our view include weaker than expected capital markets revenues, higher than expected restructuring costs and losses on asset disposals. There remains a certain degree of uncertainty regarding potential litigation issue and regulatory risks," said the report.