August 5, 2015 / 7:10 AM / 4 years ago

SocGen targets more capital, savings as results top expectations

PARIS (Reuters) - Societe Generale (SOGN.PA) is to bolster its capital cushion and step up cost savings after a surge in equity trading revenue helped the bank produce a 25 percent increase in second-quarter profit, sending its shares up more than 9 percent.

The logo of French bank Societe Generale is seen in front of the bank's headquarters in La Defense near Paris May 7, 2015. REUTERS/Charles Platiau/Files

The earnings are the French bank’s strongest since the 2007 financial crisis and its action to build up more capital shows the impact of tighter regulation on the industry.

“The banking environment is more restrictive with the new regulations imposing changes...and our three-year plan is adapted for it,” Chief Executive Frederic Oudea said.

France’s second-biggest listed bank said the extra capital would come from retained earnings and pledged to keep its dividend payout target of 50 percent for this year and next.

Other big French banks have also taken steps to add to their capital defences, including BNP Paribas (BNPP.PA).

In investment banking, revenue rose 16.2 percent, boosted by surging client demand for equities in Europe and Asia. Global banking and investor services, which incorporates capital markets activities and asset management, contributed around 40 percent of the bank’s revenues.

In Russia, where SogGen’s Rosbank business has been affected by the country’s weak economy, it cut losses to 45 million euros from 91 million in the first quarter.

SocGen continued to cut costs in its Russian operations and shed additional 1,200 employees over the second quarter.

Revenue from French retail banking rose 4.2 percent from a year earlier as the economy picked up speed.

“SocGen results are very good, which allayed concerns over solvency and the group’s exposure to Russia,” analysts at Natixis said in a note.

The bank’s shares were up more than 8 percent at 48.24 euros by 0910 GMT, on track for the biggest one-day gain in two years and touching their highest level in over four years.

The bank said it expected its common equity tier 1, a measure of balance sheet strength, of close to 11 percent by the end of 2016.

It previously had a target of at least 10 percent but had already reached it, with the level hitting 10.4 percent at the end of the second quarter.

The bank plans to carve a further 850 million euros (592.57 million pounds) in savings out of its costs by the end of 2017 in addition to the 900 million it is on course to make by the end of this year.

SocGen reported second-quarter net income of 1.351 billion euros on revenue of 6.869 billion, boosted by a surge in equities trading volumes. This beat analysts’ average forecasts for net income of 969 million and revenue of 6.125 billion .

It benefited from a 312 million euro positive impact from the revaluation of financial liabilities but took a 200 million charge for potential litigation, bringing total legal provisions to 1.3 billion.

Editing by James Regan and Jane Merriman

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