SocGen shares tumble on French retail weakness

By Mathieu Rosemain

PARIS (Reuters) -Societe Generale cut a key target for its French retail division on Thursday, overshadowing a quarterly earnings beat and sending the bank's shares tumbling.

Shares of France's third-biggest listed bank by market value were down 7.7% in Paris as of 1123 GMT, losing more ground against European rivals, which they have lagged since the start of the year.

The shares were set for their biggest one day drop since September 18, 2023, when the group presented a new strategic plan that spooked investors with conservative growth and profitability targets.

CEO Slawomir Krupa, who has promised to improve the group's share performance, declined to comment on the stock price move after publication of the bank's second-quarter results.

It reported a 24% rise in net income to 1.11 billion euros ($1.20 billion), beating the 973 million seen in a poll of 16 analysts compiled by the company.

Yet neither the better earnings nor higher-than-expected sales from SocGen's investment banking unit, driven by a 24% jump in equities trading, were enough to mitigate the disappointment over the group's French retail business outlook.

SocGen said it now expected retail net interest income - the difference between what banks earn on loans and what they pay out for deposits - of 3.8 billion euros in 2024, 300 million euros less than previously expected.

"Key new news today is the French retail miss & guidance cut for French NII this year, which we think will burden the shares," Barclays said.

Several analysts pressed SocGen's management to detail their full-year forecast for French NII, with one openly questioning the bank's ability to set out reliable guidance on the metric.

The target miss comes after a miscalculated and costly hedging policy aimed at protecting the bank against low interest rates.

'TIGHT SHIP'

Krupa has pledged to boost profits and capital by cutting costs and shedding some assets. He has set out a 2026 target for return on tangible equity of 9-10%, a goal that some analysts doubt the bank will be able to achieve.

He said last year he intended to run a "tight ship" in terms of its portfolio of assets, which translated into a significant retreat from Africa and the disposal of equipment finance division SGEF.

Those moves, aimed at bolstering the bank's capital, raised the group's yearly targets for CET1, a key measure of financial strength, which SocGen said it now sees above 13% this year, versus a previous target of around 13%.

The bank reported a 6.3% rise in second-quarter group revenue to 6.69 billion euros, above a 6.59 billion median average analysts forecast.

The bank's shares are now down about 7.5% so far this year, compared with close to a 19% gain for the European banking sector benchmark.

SocGen shares trade at less than 30% of their book value as it suffers more than its French competitors from the uncertainties created by France's snap parliamentary elections.

This valuation is comparable with that of Raiffeisen Bank International, the Austrian bank under pressure from authorities on both sides of the Atlantic to reduce its large footprint in Russia following Moscow's invasion of Ukraine.

By contrast, SocGen's bigger French rival BNP Paribas trades at almost 60% its book value, while Italy's UniCredit and Spain's BBVA at more than 100%.

($1 = 0.9240 euros)

(Reporting by Mathieu Rosemain; additional reporting by Danilo Masoni; editing by Anousha Sakoui, Tomasz Janowski and Jason Neely)