Societe Generale's Q1financial, resultsDrops 22% but Beats Estimates

Societe Generale, one of France's largest banks, reported a 22% decline in net income for the first, quarter of 2024, yet managed to surpass analyst expectations.

The Paris-based lender posted a net income of €680 million ($729.30 million), beating the consensus estimate of €463 million. Despite the drop in overall profits, the bank's investment banking division emerged as a bright spot, with earnings surging 26% to €690 million.

Why this matters: The performance of major banks like Societe Generale has a significant impact on the overall economy, as they provide critical financial services to businesses and individuals. A strong showing by the bank's investment banking division could be a positive indicator for the European banking sector as a whole.

The strong performance in investment banking was driven by robust equity derivatives sales, corporate financing services, and advisory business. However, this was offset by a 17% fall in fixed income and currencies trading revenue, attributed to high hedging costs. Group profit, declines, revenues, nearly, stable saw a slight dip of 0.4% to €6.6 billion, compared to the same period last year.

Slawomir Krupa, Societe Generale's CEO, expressed optimism about the bank's progress, stating, "We are progressing in the execution of our strategic plan. Our operating performance improved thanks to a strong contribution from Global Banking and Investor Solutions and solid revenues from International Retail Banking." Krupa, who took the helm in May 2023, has been focusing on improving the bank's performance and reducing costs.

The bank's cost-to-income ratio stood at 74.9%, an improvement from 75.8% in Q1 2023 and 78.3% in Q4 2023. Operating expenses decreased by 1.5% compared to the First, quarter, earnings of the previous year, reaching €4.98 billion. However, transformation charges increased by €106 million to €352 million.

Societe Generale's capital and liquidity position remained robust, with a Common Equity Tier 1 (CET1) ratio of 13.2%, approximately 300 basis points above the regulatory requirement. The bank's liquidity coverage ratio stood at 159% at the end of the first quarter.

The bank's various business segments showed mixed results. Global Banking and Investor Solutions saw a 5.1% decline in quarterly revenues to €2.6 billion, while Private Banking and Insurance revenues fell 3.5% to €2.0 billion. International Retail Banking revenues remained stable at €1.0 billion, and Mobility and Leasing Services saw an 8.1% increase, bolstered by a €417 million contribution from LeasePlan.

As part of its strategic initiatives, Societe Generale launched Bernstein, a new leader in research and cash equities, offering clients a wide range of international services across the equity value chain. The bank also reached agreements for the disposals of Societe Generale Equipment Finance and its subsidiaries in Morocco. Additionally, a streamlining project was initiated for the French head office to simplify operations and improve operating efficiency.

French banks, including Societe Generale, have been underperforming because of high deposit costs. However, analysts expect an improvement in performance when rates start to fall. Many European banks have back, guidance, and lower, net, profit for the first quarter, with some even raising their profit targets for the year.

Societe Generale's shares jumped 4.5% to €26.94 at 0827 GMT on Friday following the earnings release, bringing the year-to-date gain to 12%. The bank's resilience in the face of economic challenges and its proactive strategic measures have instilled confidence in investors. As Societe Generale traverses the shifting financial environment, its ability to adapt and execute its strategic plan will be vital in determining its future success.

Key Takeaways

• Societe Generale's Q1 2024 net income fell 22% to €680m, beating analyst expectations.
• The investment banking division saw a 26% surge in earnings to €690m, driven by equity derivatives and corporate financing.
• Group revenue remained stable at €6.6 billion, with a 0.4% dip compared to Q1 2023.
• The cost-to-income ratio improved to 74.9%, with operating expenses decreasing by 1.5% to €4.98 billion.
• Societe Generale's shares jumped 4.5% to €26.94 following the earnings release, with a 12% year-to-date gain.