French bank Societe Generale (SOGN.PA) posted record quarterly profit on Thursday and upped its 2026 profitability target, as a recovery in retail banking and tight cost controls offset a third consecutive quarter of shrinking revenue at its trading arm.
Group net income rose to a forecast-beating €1.79 billion ($2.04 billion) in the second quarter, up 23% from a year earlier and reaching a record, ahead of the €1.57 billion average of 13 analyst estimates compiled by SocGen.
Revenues also came in ahead of expectations, up 4.5% to €7.1 billion, with lower-than-anticipated costs.
France's second-biggest listed lender by market valuation now expects a full-year return on tangible equity -- a key measure of profitability -- of around 11%, up from a previous target of above 10%.
SocGen, which delivers its next strategy update in September, also lifted its cost-cutting goal after the bank's cost-to-income ratio came in below a full-year target of 60%.
CEO Slawomir Krupa has embarked on one of Europe's most closely watched banking turnarounds since he took the helm in May 2023.
After a rocky start, the efforts are paying off: SocGen's share price more than tripled since he took over, outperforming the EURO STOXX Banks index (.SX7P), as investors cheer his focus on capital, costs and execution.
But the bank, still worth only half of larger French rival BNP Paribas (BNPP.PA), faces the tougher task of proving it can generate sustained growth in a competitive landscape, with digital lenders such as Revolut expanding rapidly and U.S. banks continuing to gain ground in investment banking.
SocGen also announced a €1.5 billion extraordinary share buyback starting August 3, alongside an interim cash dividend of €0.75 per share, up 23% from a year earlier.
The move follows analyst expectations that the bank would return part of its excess capital to shareholders after building a core capital ratio well above regulatory requirements, notably through asset sales.
After the buyback, SocGen's core CET1 capital ratio will stand at 13.2%.
SOCGEN TRADERS FALLING BEHIND RIVALS
SocGen's second-quarter results follow a run of European bank earnings lifted by a trading boom fuelled by Iran war-driven volatility and a wave of dealmaking.
Unlike BNP, Barclays (BARC.L), UBS (UBSG.S) and Deutsche Bank (DBKGn.DE), which all posted strong gains, SocGen's trading arm disappointed.
Sales from trading in fixed income and currencies fell 11.3%, missing expectations, which the bank blamed on an "unfavourable environment" for a business mix heavily exposed to Europe and rates trading.
This is the third quarter in a row in which SocGen has reported falling year-on-year revenue from its trading business.
Equities revenue rose 5.5% to just over €1 billion, helped by derivatives, financing and prime services activity, lower than the pace seen at BNP and at Barclays.
SocGen's overall investment banking unit, however, saw revenue grow 2.7% from a year earlier.
The weakness in trading was offset by a continued recovery in retail banking and tight cost discipline.
The bank's retail division saw a nearly 15% jump in net interest income, the difference between what a bank earns on loans and what it pays out on deposits.
BoursoBank, SocGen's online bank, contributed €84 million to group profit, on track for its 2026 target of more than €300 million.
Overall group costs fell 4.1% in the quarter, pushing the bank's cost-to-income ratio down to 58.6%, already below the bank's sub-60% target for the year.
Investors are waiting for the bank's September 21 strategy update for further detail on its plans beyond the current phase of cost reductions.
($1 = 0.8778 euros)
