French lender Société Générale beat forecasts with a doubling in quarterly net profit yesterday and insisted it would not have to raise fresh cash to meet new post-crisis capital standards for banks.
The news cheered investors in Paris where Société Générale shares shot up 3.56 per cent to €43.60, giving a boost to the banking sector as a whole.
The bank, working to put behind it a trading scandal in 2008 which cost €4.9 billion, also said its capital base would exceed tough new international standards six years early.
Net profit jumped 110 per cent from a year-earlier to €896 million in the third quarter as provisions for bad loans were cut. The net figure easily beat the €716 million expected by analysts polled by Dow Jones Newswires.
Société Générale also announced an issue of 40 free shares for its 161,000 staff in 80 countries linked to performance targets up to 2013. At current prices, the 40 shares are worth some €1,700.
The bank said it would be able to increase its capital base to meet the new international requirements known as Basel III without having to raise fresh cash, a major concern for investors.
“Fears of a capital increase are clearly fading, which is a major factor in our ‘buy’ recommendation,” analysts at CM-CIC said.
At Nomura, analysts said: “The results are reassuring and are marked by a good control of costs in retail banking and by a recovery of investment income.”
Société Générale chief executive Frederic Oudea said the group “will not need to raise capital. I rule it out because we have a strong outlook for the results.
“We are going to respect very strong financial discipline in the next two to three years,” Mr Oudea said.
“We are going to continue to finance our growth but at a disciplined pace, four percent per year so we will have to choose the areas which we want to see develop.”
“It’s the confirmation of the recovery of Société Générale,” Oudea told financial news channel CNBC.
He said he expected the outcome for the fourth quarter to be similar to that in the third.
Société Générale, which had to raise capital after nearly being bankrupted by a rogue-trader scandal shortly before the financial crisis ripped through the banking system, said it would increase its base of top-class capital to the equivalent of 7.5 per cent of risks being carried at the beginning of 2013.
The Basel III bank capital standards were introduced in response to the near system failure of the US and European banking sectors and require that the most readily available form of capital held by the banks must amount to seven per cent of the risk assets on their books.
At the end of September, this top level of capital amounted to 8.4 per cent of risks but this was calculated on a less demanding basis than will be the case under the Basel III standards.
Société Générale said this capital base would rise to 7.5 per cent at the beginning of 2013 and it expected the ratio to be 8.5 per cent at the end of that year under the new standards.
This would be achieved “without a capital increase, without taking into account the possibility that these standards might be spread out progressively and while maintaining payment of a dividend of 35 per cent (of net earnings),” the bank said.
It added that it retained the option of paying the dividend in the form of shares.