PARIS Societe Generale's French retail network is unlikely to increase net banking income this year and the lender's aim to boost revenue from investment banking will be a challenge, it said on Thursday.
The French bank posted lower-than-expected fourth-quarter net income on Thursday after it set aside 400 million euros (313 million pounds) for litigation costs and warned it may not hit a 2016 profit target, knocking nearly 13 percent off its shares.
Some analysts said the fact Societe Generale it did not confirm its return on equity (ROE) target for 2016, along with higher-than-expected provisions and costs, had hit the shares.
"The increase in capital requirements and the economic and financial environment mean that it is not possible to confirm the ROE target of 10 percent," the bank said in a statement.
Chief Executive Officer Frederic Oudea sought to reassure analysts later, saying the bank had not issued a profit warning and it would try to reach the 10 percent target in the future.
The bank said it would keep costs under control and was ready to quit some activities if new regulations made them unprofitable. The bank's ROE for 2015 rose to 7.9 percent from 5.3 percent a year earlier.
European banks have had a rough start to 2016 with share prices at multi-year lows as investors worry about contagion in the financial sector from falling oil prices and the slowing Chinese economy.
Societe Generale is cutting its retail network costs and restructuring loss-making Russia operations in a bid to improve profitability but, along with other banks, it is struggling to hit its targets as litigation and regulatory costs rise.
"The revision of the 2016 return on equity target is considered as a profit warning," a Paris-based trader said.
SocGen executives said during a call that net banking income this year from its French retail bank would be at best unchanged and might show a "slight erosion" due to low interest rates. They said that while SocGen was aiming for revenue growth in corporate and investment banking, the target was challenging.
SocGen has been conducting an internal investigation into dollar transfers made on behalf of entities based in countries subject to U.S. sanctions, linked to talks with the U.S. Office of Foreign Assets Control.
The French bank said total litigation provisions stood at 1.7 billion euros by the end of 2015, but did not offer a precise explanation for the increase in the fourth quarter.
Credit Agricole, France's third-biggest listed bank, agreed last year to pay $787 million for moving hundreds of millions of dollars through the U.S. financial system in violation of sanctions against Iran, Sudan, and other countries.
In 2014, BNP Paribas paid a record $8.9 billion in penalties and pleaded guilty to criminal charges over sanctions-busting.
SocGen's net profit rose to 656 million euros in the fourth quarter from 549 million a year ago, below the average forecast in a Reuters poll of 663 million. Net profit for 2015 rose 50 percent to 4 billion euros, the highest since 2010.
French retail banking had a strong quarter thanks to rising loan demand and deposit growth, while sluggish international retail and lower fixed-income trading pushed overall revenue down 1.2 percent to 6.05 billion euros.
Analysts had expected a decline of more than 5 percent.
The bank's net cost of risk rose about 30 percent to 1.16 billion euros as it put aside 230 million euros more in the fourth quarter at its investment bank. It said it had made "conservative provisioning on a European player" and had "cautious provisioning on oil and gas".
(Editing by David Clarke)