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SocGen’s turnaround plan on track as it ups revenue forecast

French bank Societe Generale SOGN.PA) on Tuesday raised its full-year revenue forecast after swinging to a profit in the second quarter on lower bad loan provisions and a rebound in its domestic retail banking business, sending its shares higher.

In a sign that Chief Executive Frederic Oudea’s turnaround strategy is starting to pay off, Societe Generale now expects revenue to grow in all its businesses this year, including in French retail banking, where it had flagged a possible fall.

Under pressure to boost profitability, Oudea has been trying to revive the lender after losses from stock-linked derivatives wiped out equity trading in the first and second quarters of 2020, while a cumbersome retail banking structure hindered growth.

France’s third-largest listed lender, after BNP Paribas (BNPP.PA) and Credit Agricole SA (CAGR.PA), also forecast its cost of risk, which reflects provisions against bad loans, would be 20-25 basis points this year, down from a previous estimate of 30-35 basis points.

LASTING RECOVERY

Shares in SocGen were up 6.56% to 26.50 euros at 1121 GMT. The stock has more than doubled since it touched near 30-year lows in autumn last year when it closed at 10.90 euros on Sept. 25, according to Refinitiv data.

“CIB (corporate and investment banking) turnaround is on track and French retail top line also surprised positively with a strong +8% year-on-year rebound,” analysts at J.P. Morgan Cazenove said in a note.

SocGen said its cost of risk fell 88.9% in the second quarter, mirroring that of rivals including Spain’s BBVA (BBVA.MC) and BNP Paribas, which slashed provisions for unpaid loans as the global economy gradually recovering from the worst of the COVID-19 crisis.

SocGen posted second-quarter net income of 1.44 billion euros ($1.71 billion), compared with a loss of 1.26 billion euros a year earlier. Revenue rose 18.2% to 6.26 billion euros.

Oudea said at a news conference he expected the rebound in activity to last. When asked about mergers and acquisitions (M&A), he told analysts the bank had the capacity to grow organically, adding that any M&A deals would need to comply with the bank’s target on capital.

In France, where the government ended a third nationwide lockdown in mid-May, retail banking revenue rose 8.7%.

Revenue was up 24.5% in its corporate and investment banking (CIB) businesses, which SocGen began revamping two months ago by shifting resources into dealmaking and reducing its trading arm’s exposure to market swings.

Equity trading revenue was five times higher than a year earlier, while fixed income and currency trading fell 33%.

The head of SocGen’s CIB division, Slawomir Krupa, said he expected the environment in equities markets to remain “reasonably good”.

($1 = 0.8420 euros)

Reporting by Matthieu Protard Additional reporting by Rachel Armstrong in London and Clement Martinot in Gdansk Editing by Anil D’Silva and Mark Potter
Reuters

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