Société Générale SA share price up, reports increased profit on lower risk costs

Société Générale SA, Frances second-largest bank by market value, opened slightly higher today in Paris, after reporting robust quarterly earnings, showcasing a drop in revenue was offset by sharply lower costs of risk, allowing for a rise in profit.

The groups income for the second quarter of 2014 was 3.7% lower on an annual basis to €5.893 billion, while expenses increased by 2.2% to €3.897 billion, pushing gross income 13.5% lower from a year ago to €1.996 billion.

Costs of risk, however, dropped 23.7% to €0.752 billion, lifting the banks net income 7.8% to €1.030 billion, despite €200 million being set aside for contingent legal expenses.

“The good performance of the businesses in Q2 2014 illustrates the relevance of our banking model,” Frédéric Oudéa, Chairman and CEO of Société Générale SA, stated. “We confirmed the Group’s growth potential and our ability to improve our profitability.”

The banks Global Banking & Investor Solutions division saw revenues climb 2.4%, while net profit soared 28% to to €585 million, on the back of strong client-driven activity, the company said. SGs international retail banking added 2.1% in revenue, and also saw a massive 31% increase in net profit to €318 million.

The groups returns on equity after tax increased to 8.8%, from 8.4% a year ago.

On a different note, the bank set aside €200 million, upping the litigation reserve to €900 million, giving no specific reason. Reuters reported, however, that the bank was in talks with US authorities over alleged breaching of US sanctions.

SGs French rival, BNP Paribas, is also in trouble with US authorities over disregarding sanctions, and reported severe performance impacts, on account of the US Department of Justice.

The French banks are not the only foreign lenders to have problems with US regulators. Barclays, Lloyds and Deutsche are also in the clutches of US justice.

Société Générale SA was up 0.25% to trade at €37.65 at 7:20 GMT today, for a market capitalization of about €30.3 billion (about $40.6 billion). According to the Financial Times, 26 analysts offering 12 month price targets for Societe Generale SA have a median target of €47.90, with a high estimate of €59.00 and a low estimate of €39.00. The median estimate represents a 24.30% increase from the last price of €38.54.