PARIS (Business News) - French bank Societe Generale (SOGN.PA) reported a 20.1 percent fall in net profit for the first quarter on Thursday, hit by the cost of selling assets and other one-off charges as it sought to strengthen its balance sheet amid a slowing economy.
The drive to build capital, along with a fall in French retail earnings, offset a surge in bonds, currencies and commodities trading revenue.
Like European peers, France's second-biggest lender is slashing costs and jobs at its key investment banking division to meet tougher global bank rules and better resist the fallout from the euro zone's sovereign debt crisis.
SocGen reported net income of 732 million euros ($ 963 million). Analysts had been forecasting 748.1 million, according to the Thomson Business News I/B/E/S average of seven estimates.
Revenue fell 4.7 percent to 6.3 billion euros. This was better than the Thomson Business News I/B/E/S average estimate of 6.2 billion.
The bank sold 6.4 billion euros' worth of loan assets during the first quarter to cut debt, which came at a cost but no netheless pushed up its core European Banking Authority Tier 1 capital ratio - a key metric of banks' ability to withstand losses - to 9.4 percent.
Although the focus on capital hit investment banking earnings the hardest, SocGen has also started to feel the pinch at its 3,250-plus retail branches in France, which saw profits fall year-on-year for the first time since 2010.
The French economy is slowing down and unemployment is at a 12-year high.
SocGen and domestic rivals like BNP Paribas (BNPP.PA) are facing additional uncertainty at home as French voters head to the ballot box on Sunday, with frontrunner Socialist candidate Francois Hollande pledging to regulate banks further and crack down on their risky activities.
BONDS, COMMODITIES REBOUND
SocGen's co rporate and investment bank, which is shedding jobs and loan portfolios to wean itself off volatile wholesale funding markets, bore the brunt of asset sales and cost-cutting.
Profits at the unit fell 40.6 percent to 351 million euros, with corporate finance and advisory suffering from losses on asset sales and a drop in activity. SocGen is doing less balance-sheet lending and refocusing its client roster to preserve capital.
One bright spot, however, was the division's bonds, currency and commodities trading unit, which posted revenue growth of 39.2 percent year-on-year.
Although French banks are not seen as strong in this field as they are in equity derivatives, SocGen said it had benefited from growth in flow banking and rates.
By contrast, Germany's Deutsche Bank (DBKGn.DE) and Britain's Barclays (BARC.L) - which are much bigger in fixed income, currencies and commodities (FICC) than SocGen - saw this business line's revenue shrink 8 percent and rise 9 percent respectively.
Citing the "rebound" in financial markets between January and March - which was driven by the European Central Bank's unprecedented injection of cheap funds into the banking system - SocGen Chief Executive Frederic Oudea said there had not been a marked deterioration so far.
"Overall, April remained pretty good, pretty decent...In credit risk, we see no deterioration," he told CNBC.
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