By Mathieu Rosemain
PARIS (Reuters) -Societe Generale beat quarterly earnings forecasts on Thursday as the French bank kept costs and provisions down, but a slump at its retail business will turn up pressure on its new CEO as he prepares to unveil his plan.
An investor day on Sept. 18 will be a key test for Slawomir Krupa, tasked with reviving SocGen's stock after years of lackluster performance and a painful exit from Russia.
In his first remarks to analysts in his new role, Krupa said his management team had the responsibility of "running a tight ship in terms of our portfolio of activities" and would focus on "long-term value creation".
France's third-biggest listed bank reported group net income of 900 million euros ($984 million) for the three months to the end of June, well above analysts' average estimate of 670 million euros in a company poll.
The beat was underpinned by a much lower-than-expected "cost of risk" - money set aside for failing loans - of 166 million euros. Analysts had expected 430 million euros.
"We find SocGen's Q2 results good enough ahead of the investor day scheduled on 18 September ... with earnings beating consensus largely," Jefferies said in a note to clients.
But Royal Bank of Canada analysts said the bank's good cost control was also a "reflection of weaker revenues".
SocGen shares were up 2.3% at 1015 GMT.
The bank, which confirmed its full-year objectives, didn't mention longer-term targets, with all eyes now set on Sept. 18.
Dubbed a "year of transition" by Krupa's predecessor Frederic Oudea, 2023 is also marked by a severe downturn at SocGen's French retail banking division, fresh from a merger of its two local networks.
The division reported a 14% fall in revenues in the second quarter, contributing to worse-than-expected group sales of 6.29 billion euros, down 8.9% from a year earlier.
France's stringent mortgage rules, marked by caps on lending rates, weigh on banks' margins, as does the most popular savings account, Livret A, whose rate is set by the government.
The phasing out of a cheap long-term loan programme by the European Central Bank also adds a burden. The unit's second-quarter net income almost halved from a year earlier, SocGen said.
The group's net interest income -- the difference between what banks earn on loans and pay out on deposit -- will "mechanically rebound in 2024," Deputy CEO Pierre Palmieri said, citing the stabilization of Livret A's rate and the progressive adaptation of mortgage rates in France.
MARKETS LOOK FOR 'NEW BALANCE'
The French retail division's results contrasted with Italy's banking sector, where the top two lenders - Intesa Sanpaolo (BIT:ISP) and UniCredit (LON:0RLS) - posted much stronger than expected earnings, boosted by the higher interest rates.
The unit's woes came on top of a slowdown at SocGen's investment bank business in the quarter, as its profitable trading business was affected by a drop in market volatility.
Revenue from trading in fixed income and currency sunk 18.4% in April-June, while its equivalent for equities fell 5.8%.
"There's talk about a normalisation, but the reality is that we're still in a market that's trying to find a new balance," Krupa told reporters in a call, mentioning the inflationary environment and the response from central banks.
The second quarter was also affected by negative exceptional items of 240 million euros, which Credit Suisse (SIX:CSGN) analysts said were tied to "legacy legal disputes".
Retail banking outside France fared better, as did SocGen's car leasing division ALD Automotive, whose sales jumped by more than 17% thanks to the acquisition of rival LeasePlan.
SocGen said it was launching the 440 million-euro share buyback programme announced earlier this year.
($1 = 0.9145 euros)