PARIS - The French bank Société Générale said on Wednesday that its second-quarter profit slumped 42 percent from a year earlier after it wrote down the value of two poorly performing units in the United States and Russia and signaled further problems at a subsidiary in Greece as the economy there continued to plunge.
Net profit fell to 433 million euros, or $533 million, well below average forecasts of 764 million euros and down from 747 million euros in April through June 2011. The bank said it was taking steps to increase its capital cushion by the end of 2013, a move that regulators have demanded banks take to augment safety as Europe's long-running debt crisis worsens.
Société Générale said it took its biggest hit from a 250 million euro write-down on operations in Russia after a subsidiary, Rosbank, was merged with Société Générale's Russian retail bank, SG Vostok. Société Générale also wrote down 200 million euros on its investment fund based in Los Angeles, TCW Group, amid rocky market conditions.
Analysts are waiting to see whether Société Générale may sell off TCW Group as part of a broader plan to shed assets to raise money to meet the new, higher capital requirements of 9 to 9.5 percent in the next year and a half.
The bank, one of Europe's largest, signaled that it also continued to face financial challenges with its Greek subsidiary, Geniki Bank. In a statement, Société Générale said its operations in Central and Eastern Europe “excluding Greece†did well, although it did not provide figures for the Greek unit. Société Générale has recently cut funding to Geniki to a minimum as the Greek economy craters.
French banks have been slashing their exposure to Greece by selling off loads of that nation's sovereign debt, and those with subsidiaries are scrambling to figure out how to cope with a worsening of the situation in the Southern European country. A rival, the Frenc h bank Crédit Agricole, said recently that it was in talks to sell its Greek subsidiary, Emporiki Bank, as soon as possible.
But perhaps more striking were concerns that Société Générale raised about the toll from Europe's economic downturn. The bank said growth in Europe had slowed “significantly†in the second quarter, crimping some of its profitability from retail operations. The firm's international retail banking revenue fell to 1.24 billion euros, a drop of nearly 2 percent.
The bank's operations were also buffeted amid strong tensions in financial markets, as investors held back while Europe's policy makers struggled to find “durable solutions to the sovereign debt crisis,†the bank said. The weakness in capital markets hit corporate and investment bank revenue, which fell more than 30 percent to 1.22 billion euros.
Société Générale also cited deteriorating conditions in France, which has the largest economy in the euro zone after that of Germany. So far, France has managed to steer clear of the contagion from the debt crisis that began in Greece and has now jumped to Spain. But the economy has been softening, and the government is likely to face a rising bill as the costs of cleaning up the crisis grow.
The bank's French retail operations remained flat at 2.04 billion euros.
Société Générale said investors had been cautious about France during the presidential elections in May as they waited to see what policies a new government would apply to a country is experiencing “very weak growth.â€
In morning trading in Paris, shares in the French bank had risen less than 1 percent.
