By Mathieu Rosemain
PARIS (Reuters) -Societe Generale, France's third-biggest listed bank, missed market expectations on quarterly sales on Friday, as a slump in its French retail added to earnings woes in spite of the resilient performance of its investment bank division.
Group revenue dropped by 6.2% from a year earlier to about 6.2 billion euros ($6.6 billion), below a 6.3 billion-euro average of 13 analyst estimates compiled by the company.
Stringent French rules on mortgage rate-fixing, combined with a government-fixed remuneration rate on the country's most popular savings account have limited the benefits of higher rates on French banks' net interest income (NII) -- earnings on loans minus the cost of deposits.
NII at the French retail division fell by 27% in the quarter, excluding two regulated savings accounts, "well below expectations," JP Morgan said in a note to clients.
The French lender said it now saw NII of its French retail, private banking and insurance division falling by more than 20% in 2023. Next year, it expects the same key metric to be higher or equal to the 2022 amount.
The French retail division's earnings also suffered from hedging contracts against the risks of low interest rates. That negative effect peaked in the third quarter, SocGen said.
"We have obviously learnt from what happened," CEO Slawomir Krupa said on a call with reporters.
"In particular by integrating much more radical scenarios in terms of movements in volumes and speed on rates," he said, referring to the fastest European Central Bank interest rate hikes in recent history. "We have a more robust system."
Group third-quarter net income came in at 295 million euros ($313.2 million), above the 168 million-euro analyst consensus.
It was down 80% from a year earlier, as the bank booked 340 million euros in write-downs tied to some of its activities on top of a 270 million-euro provision for deferred tax assets.
Both hits to SocGen's bottom line had been flagged at the bank's investor day in September.
Jefferies called the quarterly earnings "dull", marked by a mixed bag of results. SocGen's shares had edged up 0.6% by 0924 GMT.
MEAGER GROWTH
Krupa, who took the reins of the company in May, is striving to revive the bank's shares by delivering on the cost-cutting and conservative targets he set out in September.
But his mid-term targets, which include a meager annual revenue growth target of 0 to 2% by 2026, were deemed disappointing by investors who expected higher returns to shareholders, sending shares down by more than 10%.
The current year, dubbed a year of "transition" by SocGen, is marked by the costly integration of car-leasing company LeasePlan by the bank's listed rival ALD, under the brand Ayvens. The bank has also finalised the merger of its two French retail networks.
In this context, the 0.4% drop in sales seen at SocGen's investment bank, compares well with some of its European peers.
Revenue from trading in fixed income and securities was down 4.6%, outperforming bigger French rival BNP Paribas (EPA:BNPP), Deutsche Bank (ETR:DBKGn) and Barclays (LON:BARC) as less volatile financial markets dent investment banks' earnings.
The corporate financing and advisory business saw sales up by 2.1%, helping propel the division's net profit, which was up 7.7% over the period.
SocGen cut the full-year target for its cost of risk -- money set aside for bad loans -- to "below 20 basis points", down from a guidance of below 30 basis points.
($1 = 0.9419 euros)