SocGen's booming fixed income brightens first-quarter profit hit

Thu May 3, 2012 5:06am EDT
 
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By Lionel Laurent and Matthieu Protard

PARIS (Reuters) - French bank Societe Generale (SOGN.PA: Quote) posted a surprise surge in first-quarter bond, currency and commodities revenue on Thursday, boosting confidence in its business model even as profits suffered from the drive to strengthen capital.

Like European peers, France's second-biggest lender is slashing costs, debt and jobs at its key investment banking division to meet tougher global bank capital rules and better resist the fallout from the eurozone's sovereign debt crisis.

Although the push to sell assets and improve solvency came at a cost, analysts noted strong underlying operations such as a 39 percent jump in fixed-income revenue - defying expectations of a drop-off from its strong performance a year ago.

"The results were pretty strong, said Tom Van Kempen, analyst at ING. "Operations were good and there was positive news on capital. Fixed income came as a surprise, they might have reallocated resources to those activities."

Shares in Socgen rose 4.3 pct to 18.80 euros in early trade. The stock is up 4.8 percent year-to-date, slightly better than a 2.5 percent gain for the STOXX Europe 600 index .

SocGen and larger rival BNP Paribas (BNPP.PA: Quote), which have been cutting their exposure to the 17-nation eurozone while lending more at home, are still treated as proxies for the euro and their share prices have suffered as market fears intensify over Spain's recession-wracked economy.

BNP Paribas is set to report results on Friday. Analysts said that these would likely show similar underlying trends to SocGen's, given BNP's leading position in euro-denominated bond issuance.

"We expect a relief rally from these results, and anticipate a positive read-through for BNP Paribas that reports 1Q12 tomorrow," said Nomura analyst Jon Peace.   Continued...

 
View of Societe Generale bank's headquarters in La Defense near Paris February 16, 2012. REUTERS/Charles Platiau