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August 6, 2009

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Bad loans impact on Societe Generale

SOCIETE Generale SA said yesterday its net profit fell 52 percent in the second quarter as the French bank wrote down its derivatives holdings and suffered increased losses on bad loans.

France's second-largest bank reported net profit of 309 million euros (US$445 million) for the three months ended on June 30, down from 644 million euros a year earlier. Revenue rose 2.4 percent to 5.72 billion euros.

The Paris-based bank's earnings were hit by a total of 1.7 billion euros of "non-recurring items," which included new write-downs on the value of credit default swaps it carries on its books to hedge its loans, as well as provisions for loan losses.

A credit default swap is a derivative that insures the holder of a loan or security against default. The bank uses them to hedge its corporate loan portfolio, and their value has shrunk as credit spreads have tightened, according to the bank.

The results were above the 57 million euros forecast by analysts, and in line with the bank's guidance of "slightly positive" earnings for the quarter.

Future plans

Societe Generale shares were up 5.6 percent at 49.01 in early Paris trade yesterday.

The bank took a total of 3.6 billion euros in write-downs for loan loss provisions and the shrinking value of its swaps in the first half, leaving its net profit for the six months ended on June 30 at 31 million euros, compared to 1.74 billion euros in the same period a year earlier.

In a statement, Societe Generale Chairman Frederic Oudea said the bank "is focusing on consolidating its market share, controlling risks and restructuring the activities most severely affected by the crisis in order to adapt to the new environment and prepare for the future."

The results compare poorly to Societe Generale's domestic rival, BNP Paribas, which on Tuesday reported a quarterly profit of 1.6 billion euros.

Societe Generale struggled to return to profitability last year after losing billions of euros in a massive trading scandal, and reported a net loss of 278 million euros in the first quarter this year after devaluation of assets linked to United States real estate.

During the quarter Societe Generale lost long-serving Chairman Daniel Bouton, who resigned in the aftermath of the trading scandal.


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