International Herald Tribune

The French bank Société Générale, which lost nearly ˆ5 billion in a trading scandal at the start of the year, said Tuesday that net profit fell 63 percent in the second quarter, on write-downs and after its investment banking unit posted a loss.

Net profit dropped to ˆ644 million, or $1 billion, in the second quarter from a profit of ˆ1.74 billion a year ago, the bank said in a statement. For the first half as a whole, net was down 45 percent to ˆ1.74 billion from ˆ3.17 billion a year earlier.

Still shares of Société Générale, which have performed well in recent weeks, rose 5.5 percent in Paris trading to ˆ62.65 after as the net figures beat forecasts. A survey of analysts by Bloomberg News had estimated that net income would declined to ˆ550 million. For the year to date the shares are off 32.4 percent.

The bank reported ˆ575 million of write-downs on subprime-related debt, less than half the level of the first quarter.

'There's a kind of relief rally,' said Pascal Decque, an analyst that covers the bank for Natixis Securities in Paris. 'The write-downs appear to be under some control - certainly compared to its U.S. peers. The open question is will it be enough? Is there more in the pipeline?'

Decque noted that the bank's return on equity was close to 10 percent in the second quarter and that its tier-1 capital ratio - a common yardstick of a bank's strength - was above the 'magic number' of 6 percent.

The corporate and investment banking unit posted a ˆ186 million loss, compared with a ˆ721 million profit a year earlier, the bank said. Revenue in the second quarter was down 19 percent.

Three of the four largest listed French banks - Société Générale, Credit Agricole and Natixis - have either raised capital to shore up their balance sheets in the face of losses related to the credit crisis, or they have announced plans to do so.

BNP Paribas, which is due to report earnings Wednesday, has not done so. Decque said the market was wary that there might be a disappointment with its earnings. Its shares are down 18 percent for the year to date, although in morning trading Tuesday they were up 2.3 percent to ˆ60.89.

BNP Paribas helped set off the global credit crisis almost a year ago by freezing three funds that invested in subprime debt.

Frédéric Oudéa, the chief executive of Société Générale, said that during a first half 'marked by a crisis on an exceptional scale, Société Générale's performance reflects the robustness of its portfolio of activities.'

He noted that core activities like retail banking and financial services, continued to grow, while global investment management made a positive contribution to net income, and said that corporate and investment banking had 'generated very good business volumes.'

The bank, he added, would 'take advantage of the quality of its customer franchises, its solid capital position and the commitment of all its employees to pursue its strategy despite an environment that is likely to remain difficult.'

A trading crisis that led to the ˆ4.9 billion loss was booked in the fourth quarter last year. Making matters worse, the bank also reported ˆ2.05 billion in write-downs and provisions linked to the subprime crisis.

Since January, Société Générale has engaged in a multifront effort to repair the damage from the scandal to its reputation and balance sheet.

Under pressure from shareholders, the bank reshuffled its management. Daniel Bouton, who remains chairman, relinquished his role as the chief executive to Oudéa in May.

In addition to replacing its chief executive, it raised ˆ5.5 billion from shareholders in new capital. And it is investing more than ˆ100 million to upgrade its internal risk control systems.

A report leaked last week by France's financial police said that Jérôme Kerviel, the former trader whom Société Générale blames for losing the ˆ5 billion, took advantage of his managers' negligence to camouflage billions of euros in unauthorized bets.

The document contradicts the trader's stance that his superiors knew what he was doing. Kerviel's hearing will continue after the summer.