SocGen posts profit beat despite hit from restructuring costs

Key Points
  • Philippe Heim, deputy CEO of the bank, told CNBC that it was a "solid quarter."
  • The performance on the global banking arm saw a significant slowdown.
  • It reported a net income of 1.05 billion euros ($1.16 billion) for the second quarter.
Societe Generale deputy CEO: Market was 'tough' in fixed income

Societe Generale reported a net income of 1.05 billion euros ($1.16 billion) for the second quarter on Thursday, beating market expectations.

Analysts were expecting a net income of 964 million euros, according to a Reuters poll. The French bank posted a net income of 1.2 billion euros for the same quarter a year ago.

Here are some key highlights for the quarter:

  • Net banking income of 6.3 billion euros, versus 6.5 billion euros a year ago.
  • Return on tangible equity of 9.7%, versus 11.2% a year ago.
  • Common equity tier 1 ratio stood at 12% at the end of the quarter, versus 11.1% a year ago.

Shares jumped more than 5% in early deals.

Philippe Heim, deputy CEO of the bank, told CNBC that it was a "solid quarter" despite some "heavy headwinds." Meanwhile, Fréderic Oudéa, the group's chief executive officer, said in a statement: "Societe Generale has provided further evidence of the successful execution of its strategic plan with two priority financial objectives: increasing its level of capital and improving profitability."

The Paris-based bank announced earlier this year its plans to cut 1,600 jobs — mainly at its corporate and investment banking arm. This was an attempt to boost profitability after last year's poor performance and it confirmed Thursday that it had booked a 227 million euro restructuring provision.

Societe Generale SA headquarters stand in Paris, France
Antoine Antoniol | Bloomberg | Getty Images

Global banking down 46%

Looking at the different arms of Societe Generale, its French retail banking division saw a drop of 2.5% in net income from a year ago, reporting a profit of 356 million euros. Nonetheless, the bank said the French division showed a "solid performance" amid a low interest rate environment and changes to French networks.

The international retail banking arm saw a net income of 515 million euros in the end of the second quarter, a fall of 4.8% from a year ago.

Meanwhile, its global banking and investor solutions arm saw a significant slowdown. The division reported a 46% drop in net income from a year ago due to "weak investment banking activity in Europe."

Speaking to CNBC's Julianna Tatelbaum Thursday, Heim said Societe Generale aims to achieve a higher CET1 ratio in the future. This ratio gauges the buffer that a bank has in times of economic stress. "Down the road we will be above 12%," Heim said.

ECB's continuation of dovish policy 'not good news': SocGen deputy CEO

Low rates

One of the biggest challenges for European banks has been the low interest rate policy conducted by the European Central Bank (ECB) in the wake of the sovereign debt crisis. Market expectations point to further cuts in rates, rather than a normalization of its monetary policy.

"The continuation of the dovish policy by the ECB is not good news. For sure, for the financial system it puts pressure on retail activities. At some point it also puts pressure on insurance companies," Heim said. "What is important for us is being a diversified bank."