Société Générale: net profit collapses under rising rates

Weighted by the effect of rising rates on retail banking and by accounting adjustments, the Société Générale bank revealed on Friday a net result divided by five in the third quarter, compared to the same period in 2022, at 295 millions of euros.

Despite “good commercial activity in most businesses”, net profit was “penalized by the negative effect in retail banking in France of short-term hedging of the net interest margin”. It also includes “exceptional accounting elements”, as was announced in mid-September, commented general manager Slawomir Krupa, quoted in the press release. This net profit (group share) of 295 million euros, however, remains higher than the expectations of analysts, who were counting on 225 million, according to the consensus compiled by the data provider Factset.

Net profit including non-controlling interests is 563 million euros. In addition to the effects of the increase in interest rates, the bank claimed “an exceptional negative impact” of around 610 million euros, linked in particular to depreciation and a form of renunciation, which can be canceled , to tax reductions. With these accounting adjustments, the bank wanted to simplify its balance sheet, thus fitting with the stated desire of Slawomir Krupa, at the helm since the end of May, to speak a language of truth. In mid-September, the bank's general director indicated in particular that he was aiming for fairly low annual revenue growth, between 0% and 2% on average between 2022 and 2026, and a distribution rate of between 40% and 50% of net income. published. For comparison, it was 90% for last year. Announcements very poorly received by the market, the action tumbling by 12.05%. Since then, it has lost even more than 7%.

Also gone is the use in the presentation of results of an “underlying” profit, supposed to better reflect the dynamics of the group, the bank now communicating only in “published data”, less subject to narration. Net banking income (NBI), equivalent to turnover for the sector, amounted to 6.19 billion euros in the third quarter, down 6.2% year-on-year. The retail banking division in France, which also includes private banking and insurance, particularly suffered: it posted a NBI down 16.4% to nearly 1.9 billion euros, and a net profit to 110 million euros (-65.3%). Like its peers, Société Générale has been penalized by the rise in rates, the beneficial effect of which on French banks takes longer to materialize than in other countries because the vast majority of loans are at fixed rates. On the other hand, they must immediately better remunerate all deposits, and in particular Livret A.

The bank has also made the choice until mid-2022 to protect itself against a drop in rates, a costly hedge because it goes against the direction of rates, but which should decrease over the coming quarters, to disappear during 2024. The corporate and investment banking businesses, for their part, achieved a net profit of 647 million euros, up 7.7% over one year, while the NBI of the activity increased. amounted to 2.3 billion euros (-0.4%). As for the international retail banking division, which also includes mobility services such as car leasing, its net profit fell by 26.2% to 377 million euros, mainly due to an increase in costs, with activity having grown by 12% over one year. The increase in costs is explained in particular by the integration of LeasePlan, whose acquisition for 4.8 billion euros was finalized in May and which gave birth to a European giant in long-term car rental now presented under the “Ayvens” brand.