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Quarterly Financial Information - Q2 2015

VERY GOOD SECOND QUARTER

  • Strong growth in net banking income: +16.4% at EUR 6.9bn (+8.9%* vs. Q2 14 excluding non-economic items**), with an increase* in all the businesses
  • Decline in the cost to income ratio(1): -0.9 points vs. Q2 14
  • Historically low cost of risk(2) at 44bp in Q2 15 vs. 57bp in Q2 14
  • Group net income: EUR 1,351m in Q2 15 (+25.2% vs. Q2 14)
  • CET1 ratio of 10.4%, leverage ratio of 3.8% and total capital ratio of 15.2% at the end of Q2 15
  • ROE(3): 10.3%>

H1 15: IN LINE WITH THE EXECUTION OF THE STRATEGIC PLAN

  • Net banking income: EUR 13.2bn, +14.4% vs.  H1 14, (6.7%* vs. H1 14 excluding non-economic items**)
  • Cost to income ratio(1) down -1.4 points vs. H1 14 despite the new regulatory levies
  • Decline in the cost of risk(2): 49bp in H1 15 vs. 61bp in H1 14
  • Book Group net income: EUR 2,219m in H1 15 (EUR 1,248m in H1 14)
  • EPS(4): EUR 2.54 in H1 2015 (EUR 1.37 in H1 14)

 *When adjusted for changes in Group structure and at constant exchange rates, adjusted for the impact of costs recognised in NBI in 2014 and recorded in operating expenses in 2015.

**Excluding non-economic items (revaluation of own financial liabilities and Debt Value Adjustment) for EUR +53m in Q1 15 and EUR +326m in Q2 15 (EUR -153m in Q1 14 and EUR -23m in Q2 14) in net banking income, or an impact on Group net income of respectively EUR +35m in Q1 15 and EUR +213m in Q2 15 (and EUR -100m in Q1 14; EUR -14m in Q2 14). See methodology notes.

Items relating to financial data for 2014 have been restated due to the implementation of the IFRIC 21 standard which applies retrospectively as from January 1st, 2015.
(1)   Cost to income ratio excluding non-economic items, PEL/CEL provision and adjusted for the effect of the implementation of IFRIC 21. The adjustment relating to IFRIC 21 corrects, for each quarter, 25% of the taxes borne in their entirety in H1 in respect of the financial year.

(2)   Excluding litigation issues, in basis points for assets at the beginning of the period, including operating leases. Annualised calculation.

(3)   Annualised. Excluding non-economic items, collective provisions for litigation issues, PEL/CEL. See methodology note No. 2.

(4)   After deducting interest, net of tax effect, to be paid to holders of deeply subordinated notes and undated subordinated notes for Q2 15 (respectively EUR -104 million and EUR +3 million), and correction of the effect of capital gains/losses on partial buybacks recorded during the quarter (nil in Q2 15), or in H1 15 EUR -219 million for deeply subordinated notes, EUR +4 million for undated subordinated notes, and 0 for capital gains/losses. See methodology note No. 3. Excluding the revaluation of own financial liabilities, and DVA (Debt Value Adjustment on financial instruments as a result of the implementation of IFRS 13), earnings per share amounts to EUR 2.22, after deducting interest payable to holders of deeply subordinated notes and undated subordinated notes.

 

Societe Generale’s Board of Directors met on August 4th, 2015 under the chairmanship of Lorenzo Bini Smaghi and examined the results for Q2 and H1 2015.

The Group’s net banking income totalled EUR 6,869 million in Q2 2015 (up +16.4% vs. Q2 2014), taking net banking income for H1 2015 to EUR 13,222 million (+14.4% vs. the previous year and +11.5%* when adjusted for changes in Group structure and at constant exchange rates). When restated for non-economic items**, second quarter net banking income amounted to EUR 6,543 million (+8.9%* vs. Q2 2014), with an increase in all the businesses (when adjusted for changes in Group structure and at constant exchange rates). In H1, it was EUR 12,843 million, up +6.7%* vs. H1 2014.

Group net income was EUR 2,219 million in H1 2015, up +77.8% vs. H1 2014, including EUR 1,351 million for Q2 (+25.2% vs. Q2 14).

The Group has concluded a very positive second quarter in terms of commercial activity, in line with the beginning of the year. In a still very low interest rate environment, French Retail Banking continued to win new customers, while International Retail Banking & Financial Services’ revenues grew* in all activities excluding Russia. In Global Banking & Investor Solutions, Q2 provided further confirmation of the trends observed at the beginning of the year, with significant growth in Financing & Advisory and Global Markets and Investor Services.

Operating expenses remained under control, with a cost to income ratio([1]) down -0.9 points in Q2 2015 vs. Q2 2014, and -1.4 points in H1 vs. the same period the previous year, despite new contributions to Resolution Funds in Europe. With the cost savings plan decided in 2012 having fulfilled its objectives, the Group is embarking on new operating efficiency measures aimed at reducing its costs by an additional EUR 850 million by end-2017.

The net cost of risk includes a new collective provision for litigation issues of EUR 200 million, taking this provision to EUR 1.3 billion in total at end-June 2015. The commercial cost of risk([2]) continued to decline, to 44 basis points in Q2 2015 and 49 basis points in H1, down by respectively -13 and -12 basis points vs. the same periods in 2014, and is therefore below the targets set out in the strategic plan for end-2016 (55-60 basis points).

Finally, the Group provided further evidence of the robustness of its balance sheet, with a “Basel 3” Common Equity Tier 1 (CET1) ratio of 10.4%([3]), up +31 basis points vs. March 31st, 2015, a leverage ratio of 3.8% and a total capital ratio of 15.2%. It has therefore exceeded the targets set for end-2016 and has confirmed its intention to continue to strengthen its ratios. The CET 1 ratio is now expected to be around 11% at end-2016, with a leverage ratio between 4% and 4.5%. The target for the total capital ratio is set above 18% for end-2017 in anticipation of the regulatory deadlines related to the TLAC.

The Group’s ROE([4]) stood at 10.3% in Q2 and 9.7% in H1, close to the target of 10% announced for end-2016.

([1])Cost to income ratio excluding non-economic items, PEL/CEL provision and adjusted for the effect of the implementation of the IFRIC 21 standard (25% per quarter).

([2])Excluding litigation issues, in basis points for assets at the beginning of the period. Annualised calculation.

([3])The published solvency ratios are calculated based on CRR/CRD4 rules, fully loaded, unless specified otherwise, see methodology note No. 5.

([4])Excluding collective provisions for litigation issues, non-economic items, PEL/CEL provision and adjusted for the effect of the implementation of the IFRIC 21 standard. Annualised calculation, see methodology note No. 2.

 

Commenting on the Group’s results for H1 2015, Frédéric Oudéa – Chief Executive Officer – stated:

“With Group net income of EUR 2.2 billion in H1 2015, substantially higher, the Societe Generale Group has produced a good performance, illustrating its ability to execute its strategic plan in a disciplined manner. Commercial activity was very dynamic in all the businesses due to the teams’ proactive stance in serving customers. The cost of risk continued to decline and the capital structure was further strengthened.

Mid-term, the Group is on track to achieve all the targets set. All the Group’s businesses have posted earnings in line with or above the targets, with the exception of Russia where the situation is gradually normalising.

In the coming months, the Group will continue to develop in its strategic areas, capitalising on the rebound in the European economy, and adapt to the technological and regulatory changes through the rollout of its digital strategy and the continuation of its operating efficiency efforts.

Drawing on the strengths and consistency of its business model and despite a very restrictive regulatory environment for banks, Societe Generale has demonstrated its ability to structurally generate profitable growth and create value for its shareholders.”