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SocGen Plans Car-Leasing IPO as Earnings Surpass Estimates

SocGen Plans Car-Leasing IPO as Earnings Surpass Estimates

Societe Generale SA reported fourth-quarter profit that exceeded estimates, helped by a surprise hop in earnings from French consumer banking. The lender announced plans for an initial public suggesting of its car-leasing business.

Net income was three hundred ninety million euros ($417 million), down forty one percent from a year earlier but above the three hundred fifteen million-euro average estimate of seven analysts surveyed by Bloomberg. Costs including a charge tied to the sale of a Croatian unit weighed on the results.

European lenders have struggled to increase profit amid record-low interest rates, tepid economic growth and tougher capital rules. In the final three months of 2016, Societe Generale benefited from lower provisions for bad loans, improved trading conditions and better results from Russia and Africa. The lender said it will raise its dividend ten percent to Two.20 euros a share.

“SocGen should perform well on the back of those results,” Jefferies analysts led by Maxence Le Gouvello said in a note titled “Firing All Cylinders.” The “hit comes across all divisions with positive” cost control, they wrote.

Societe Generale’s stock rose 1.8 percent to 43.48 euros at 11:20 a.m. in Paris trading, after earlier climbing as much as four percent. The shares have gained more than fifty percent over the past twelve months, valuing the company at thirty five billion euros.

Auto-Leasing IPO

Societe Generale plans to suggest shares in its wholly-owned ALD auto-leasing division this year, market conditions permitting, through the sale of a minority stake. ALD, which leases fleets of autos to corporations and other clients, has almost 1.Four million cars and operations in forty one countries, making it the largest in Europe, according to the bank.

Severin Cabannes, left, and Frederic Oudea on Feb. 9.

The IPO will give ALD the chance “to seize potential growth or potential acquisitions,” Deputy CEO Severin Cabannes said in an interview on Bloomberg Television. “Societe Generale will remain the controlling shareholder and main funding provider of ALD.”

In the fourth quarter, profit at the French retail unit unexpectedly rose twenty five percent to four hundred two million euros, helped by cost reductions and lower loan-loss provisions. The result surpassed the average estimate of two hundred ninety million euros in a survey of analysts by Bloomberg News. Societe Generale announced at the end of two thousand fifteen an intention to cut twenty percent of its branches by two thousand twenty while luring more clients to Boursorama, its online bank.

The results “reflect good commercial and operational spectacle in all the businesses and rigor in controlling costs and risks,” Chief Executive Officer Frederic Oudea, 53, said in the statement.

Trading Rebound

Interest rates will most likely remain low in Europe this year and the European Central Bank will maintain its current policies as France, the Netherlands and Germany face elections, Cabannes said. At Societe Generale’s French consumer-banking unit, mortgage refinancing “will have an influence” in 2017, but most likely less than last year, he said.

Net income from global banking and investor solutions, which includes trading and investment banking, rose fifty one percent to four hundred thirty two million euros, as the lender wrote back provisions it had set aside previously. Earnings hit the average estimate of analysts compiled by Bloomberg News. Equities trading revenue rose thirteen percent to five hundred nine million euros, topping estimates, while fixed-income sales climbed 6.8 percent to five hundred fifty one million euros, missing estimates.

Wall Street firms witnessed a rebound in debt trading in the fourth quarter, driven by an increase in Treasury yields and client activity following the U.S. presidential election. The five largest U.S. investment banks recorded a forty three percent aggregate increase in fixed-income revenue in the period, according to Bloomberg Intelligence. BNP Paribas SA, France’s largest bank, had a twenty three percent build up in bond-trading income.

‘Certain Message’

International retail banking and financial services posted a fifty percent increase in earnings, as Russia returned to profit and results at banking networks in Africa improved.

The bank’s comeback on equity was 7.8 percent for 2016, up from seven percent the prior year. The dividend was ten cents higher than analysts at Kepler Cheuvreux had estimated, and the bank said it aims to increase the payout going forward.

The dividend outlook was a “certain message” given that most analysts expected a dip in 2017, analysts at RBC Capital Markets led by Anke Reingen wrote in a note. The fourth-quarter “results were reassuring, coming in largely in line with expectations in the core divisions.”

Earnings in the quarter were squeezed by a two hundred thirty five million-euro charge tied to the sale of Splitska Bank, a Croatian lender, and a one hundred fifty million-euro provision for unspecified legal risks. The bank also booked a two hundred eighty six million-euro charge related to a review of deferred-tax assets.

Societe Generale will proceed to seek “bolt-on” acquisitions in businesses such as private banking, Oudea said at a press briefing. Over the next three to four years, consolidation in the European banking industry will most likely happen within national borders, he said.

— With assistance by Caroline Connan, and Francesca Cinelli

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