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SocGen shares jump as investors applaud capital target achievement

Shares in Société Générale SA rose after it met its 2020 capital target ahead of schedule, easing investor concerns about the French bank's capital levels.

The bank's shares were up almost 6% shortly after Paris market open, and although they had fallen back to a 4.62% gain at 2:32 p.m. Paris time, they were the best performer of the benchmark CAC 40 index.

SocGen boosted its capital by 52 basis points during the quarter to reach a common equity Tier 1 ratio of 12.0%, helped by higher-than-expected second-quarter earnings; discipline in managing risk-weighted assets, which determine how much capital a bank should hold; restructuring of its investment banking division; and the sale of nonstrategic assets, CEO Frédéric Oudéa told analysts following publication of second quarter results.

"We are fully on track to deliver on our capital trajectory," he said.

The bank has been shedding nonstrategic assets to boost its common equity Tier 1 ratio, a key measure of financial strength, to address investor concerns about its capital levels, which have been weighing on its shares. In the last year its shares have fallen 41.73% while the Stoxx Europe 600 banks index has declined 22.58%.

The group has embarked on a cost-cutting drive at its investment banking division following weak results at the end of 2018. It also revised its 2020 profit goals and planned to reduce risk-weighted assets at its global markets division by €8 billion.

CFO William Kadouch-Chassaing said the bank had already achieved around €5 billion of the €8 billion target. That, combined with continuing asset sales and organic capital generation, would help the bank achieve a CET1 ratio of between 12.4% and 12.8% in 2020, offsetting the regulatory impacts such as the ECB's targeted review of banks' internal models, he said.

Interest rates

Like many of its European peers, SocGen has been looking to shore up profits at a time when interest rates remain low.

Its second-quarter net income dropped 13.9% to €1.05 billion while net banking income was down 2.6% to €6.28 billion.

Kadouch-Chassaing said there were increasing expectations that rates would remain low for a longer period of time than expected, but he added the bank's diversified model would help protect it against low rates. Around 10% of the group's revenues were exposed to interest rate fluctuations largely in retail banking, he said.

At the bank's investment banking division, 75% of revenues come from non-interest income, while 95% of revenues at its financial services and insurance business came from income not dependent on interest rates, he said. The amount is 50% in French retail and 25% in international retail, he said.