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Societe Generale Profits Decline in First-Quarter

French bank Societe Generale on Thursday reported a 1.9% drop in first-quarter net profit, as higher operating expenses offset strong growth at its international retail division.

Net profit slipped to 1.43 billion euros ($1.94 billion) from 1.46 billion euros in the same period in 2006. The result was below analysts' expectations of 1.46 billion euros ($1.98 billion).

The Paris-based bank, thought to be an attractive takeover target for a major international bank, said in a statement that economic conditions remained generally favorable in the quarter "albeit more uncertain in the U.S., particularly in the real estate sector."

First-quarter revenue rose 4.8% to 6.05 billion euros ($8.19 billion). Operating expenses climbed 8.4% to 3.7 billion euros ($5.01 billion).

"The increase in operating expenses reflects the group's continued investment in all core businesses," the company said.

The French lender also cited a particularly strong 2006 comparison quarter in corporate and investment banking and the French retail business as a reason for the net profit decline.

First-quarter net profit at the corporate and investment banking unit increased by 4.6% to 666 million euros ($901.43 million) from 637 million euros in the year-ago period.

The bank's international retail banking division in the first quarter recorded the group's strongest growth, with a 30% increase in net profit to 144 million euros ($194.9 million).

SocGen said it continued its international expansion in emerging markets, opening branches in Romania, Russia, Morocco, Algeria and Egypt.

Net profit at SocGen's domestic retail business rose 0.9% to 319 million euros ($431.77 million).

Shares of the Paris-based lender have soared more than 10% in recent weeks amid speculation that it may have started preliminary talks with its Italian peer UniCredit. SocGen shares were down 2.72% at 148.76 euros ($201.35) in early Thursday trading.