Wed Nov 4, 2009 12:40pm EST
By Sudip Kar-Gupta and Julien Ponthus
PARIS (Reuters) - Societe Generale's (SOGN.PA: Quote, Profile, Research,Stock Buzz) lower-than-expected third quarter profit has highlighted the French bank's weakness compared to many of its rivals and its position as a possible bid target if there is a sector shake-up.
Like peers Credit Suisse (CSGN.VX: Quote, Profile, Research, Stock Buzz) and Deutsche Bank (DBKGn.DE: Quote, Profile, Research, Stock Buzz), SocGen's investment banking results powered the profit line although debt provisions rose to cover an expected further rise in bad loans in 2010.
Net profit rose to 426 million euros ($623 million) euros from 183 million a year earlier, mainly due to the fact that SocGen's investment banking arm swung to a profit from a year-earlier loss.
However, the bank missed the average estimate of 481 million euros in a Reuters poll of 10 analysts as group revenues were weaker-than-expected and provisions were higher. The banking group's revenues took a hit at its international arm, affected by the Russian economic slowdown and its investment management arm, due to outflows.
France's second-biggest and the euro zone's No.6 bank by market value has been steadily recovering since a 4.9 billion euro trading loss in January 2008, which it blamed on unauthorized deals carried out by Jerome Kerviel, a former junior trader at the bank.
However, SocGen remains the subject of persistent bid speculation in France. Last week, Credit Agricole (CAGR.PA: Quote, Profile, Research,Stock Buzz) -- the country's biggest bank by branches -- denied a report in Le Monde that it was considering a merger with SocGen and insurer Groupama.
La Tribune newspaper said on Wednesday that BNP Paribas (BNPP.PA:Quote, Profile, Research, Stock Buzz) was looking at SocGen.
BNP Paribas, France's biggest bank by market capitalization, denied the Tribune article. BNP reiterated that its immediate focus was on integrating its recent buy of Fortis assets.
"This rumor is unfounded from A to Z!," a BNP spokesman said in an emailed statement to Reuters.
SHARES RECOVER
Nevertheless, the Tribune article helped push up SocGen's shares, which were also boosted by the company's solid performance at its French retail banking division.
"Even though BNP has denied it, it would be a good opportunity for them," said Agilis Gestion fund manager Arnaud Scarpaci. Agilis Gestion owns some SocGen shares.
SocGen shares, which fell 4 percent on Tuesday, were up 4.6 percent at 45.65 euros in early morning trade. At that price, SocGen has a market capitalization of around 34 billion euros.
BNP Paribas shares were up 2.3 percent at 52.06 euros, giving BNP a market capitalization of around 62 billion euros.
SocGen's results kicked off the third-quarter earnings season for French banks, with BNP Paribas (BNPP.PA: Quote, Profile, Research, Stock Buzz) also expected to post higher earnings on Thursday.
Though many of the world's top banks have posted higher profits over the last month, doubts remain over provisions in the sector and the aftermath of the financial crisis.
On Wednesday, Bank of Ireland (BKIR.I: Quote, Profile, Research, Stock Buzz) posted an underlying first-half loss and said it might have to seek further state aid, while earlier this week UBS (UBSN.VX: Quote, Profile,Research, Stock Buzz) reported a loss and the UK injected more taxpayer money into Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) and Lloyds (LLOY.L: Quote, Profile, Research, Stock Buzz).
"We are still weighing up the effects of the crisis. We are simply in a period of stabilization in economic activity," SocGen Chief Executive Frederic Oudea told BFM radio.
SocGen shares have risen around 34 percent so far this year, less than a 48 percent gain in the DJ Stoxx European banking index .
($1=.6835 Euro)
(Editing by Will Waterman, Simon Jessop and Karen Foster)
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