Earnings

SocGen posts earnings miss but touts possible stock buybacks

Key Points
  • CET 1 ratio stood at 12.7% at the end of December, vs. 10.9% a year ago.
  • The bank said Thursday it expects to pay out a dividend of 2.20 euros per share in cash.
  • The French lender also announced a new dividend policy, with a payout ratio of 50% of its underlying group net income, which could include a share buyback of up to 10%.
VIDEO2:5002:50
Societe Generale deputy CEO: '2019 was a year of transition'

Societe Generale posted an earnings miss for the fourth quarter of 2019 on Thursday, but revealed plans for possible stock buybacks and said profitability would improve this year.

It reported a net income of 654 million euros ($719.26 million) for the fourth quarter, slightly below market expectations. Analysts were expecting a profit of 665.8 million euros for the quarter and 3 billion euros for the whole of 2019, according to data from Refinitiv. Societe Generale said net income reached 3.2 billion euros for the year.

Here are some of the highlights for the fourth quarter:

  • Revenues reached 6.2 billion euros for the quarter, vs. 5.9 billion euros a year ago.
  • CET 1 ratio stood at 12.7% at the end of December, vs. 10.9% a year ago.
  • Operating expenses rose to 4.5 billion euros, from 4.45 billion euros a year ago.

The bank had disappointed analysts at the end of the third quarter with lower-than-expected net income, but a stronger capital position boosted the appetite for the stock. This momentum in its capital position continued into the final quarter of the year with SocGen saying Thursday that it wants to keep its CET1 ratio above 12% in 2020. This ratio is a core measure of a bank's financial strength.

"Basically 2019 was a year of transition, a very active period of transformation for the group. So in this scenery, we delivered pretty good results," Philippe Heim, deputy CEO of Societe Generale, told CNBC.

VIDEO3:0103:01
SocGen deputy CEO: Our commitment is to improve profitability

'Need to be realistic'

The bank reported a net income of 230 million euros for its French retail unit, down 18.4% from a year ago. The French lender said it was pleased with this performance nonetheless, given the current backdrop of low interest rates and the ongoing transformation of its French network.

European lenders have often criticized the ultra-loose monetary policy carried out by the European Central Bank (ECB). The Frankfurt-based institution introduced negative rates in 2014 and it hasn't yet returned to positive territory. Negative rates can dent a bank's balance sheet.

French bank Societe Generale's headquarters in Paris.
Chesnot | Getty Images News | Getty Images

"We would be very happy to see a normalization of this monetary policy, but the consensus is that it will continue low for long and we have to be prepared; we need to be realistic," Heim told CNBC's Charlotte Reed.

Looking at the other units, international retail banking saw net income hitting 463 million euros in the fourth quarter, down from 563 million euros a year ago. Its global banking and investor solutions unit saw profits grow by more than 60% from the previous year.

Outlook for 2020

France's third-biggest bank predicted a higher net income in 2020, compared to 2019. It forecasts higher revenues in the current economic environment, lower operating expenses and a decline in its cost-to-income ratio.

It also announced a new dividend policy, with a payout ratio of 50% of its underlying group net income, which could include a share buyback of up to 10%.

The bank said Thursday it expects to pay out a dividend of 2.20 euros per share in cash related to its 2019 performance.

Shares of the French bank are up by 15% over the last 12 months.