Societe Generale loses euro278M in first quarter after new writedowns on US real estate

French bank Societe Generale posts 1Q loss

PARIS — French bank Societe Generale said Thursday it returned to a loss in the first quarter after the further devaluation of its U.S. real estate-linked assets caused it to take nearly euro2 billion ($2.7 billion) in new writedowns and provisions.

Paris-based Societe Generale, which had struggled to return to profitability last year after losing billions of euros in a massive trading scandal, reported a net loss of euro278 million in the first quarter, down from a euro1.1 billion profit a year earlier.

The bank, whose chairman announced his resignation last week, blamed the downturn in the U.S. real estate market, ratings downgrades of bond insurers, and what it called its own “tighter valuation assumptions” for euro1.5 billion in new losses and writedowns in its investment banking division.

Societe Generale’s loss comes in stark contrast to larger French rival BNP Paribas, which Wednesday reported a quarterly profit of euro1.56 billion. In a statement, it forecast that the global economic recession would continue to weigh on banks’ performance this year and said “Societe Generale will not be immune from this trend.”

The bank’s loss also contrasted with reassuring comments from Societe Generale’s chief executive during the quarter. Presenting the 2008 results in February, Frederic Oudea said “Overall when I see how we entered 2009, I think we are in good shape in relative terms compared with our peers.”

In its statement, Societe Generale predicted its cost of risk will remain high this year and didn’t rule out additional writedowns, although those taken in the first quarter “already reflect the current deterioration in the U.S. real estate market and monoline (bond) insurer counterparties.”

Societe Generale shares fell 18 percent during the first quarter, but have jumped 45 percent since then as stock markets have rebounded globally on hopes that the worst of the financial crisis is over.

The bank also said it has decided to participate in the second round of the French government’s plan to recapitalize the country’s banks. Societe Generale received euro1.7 billion in the first round last December, when France pumped a total of euro10.5 billion into six of the country’s largest lenders.

The investment banking division reported a loss of euro414 million, down from earnings of euro141 million a year ago, while sales slumped 46 percent to euro841 million.

The bank’s domestic retail banking business saw earnings slump 29 percent to euro216 million, on a 1 percent slide in revenue to euro1.73 billion.

Announcing his resignation last week, Societe Generale chairman Daniel Bouton said his aim in leaving was to protect the bank, and that it was “better for me to withdraw, proud of having led a wonderful company.”

Bouton was Societe Generale’s chief executive in January 2008, when the bank announced one of the world’s largest trading scandals, which caused a massive loss. He stepped down as CEO last May but had remained as chairman.

Oudea is to take on the chairman’s duties May 24, while keeping his job as CEO.

Splitting the two roles had been one of Societe Generale’s responses to the firestorm that erupted at the bank in late January 2008, when it announced losses of almost euro5 billion (more than $7 billion) in the trading scandal it has blamed on unauthorized deals by a single trader, Jerome Kerviel.

Kerviel maintains that his superiors were aware of his risky transactions but looked the other way while he was earning big money for the bank, intervening only when he started to lose. The bank insists Kerviel was acting alone.

Two investigating judges wrapped up a yearlong probe into the case last January but have not yet announced any findings.