The outlook for troubled French bank Societe Generale has improved significantly, according to analysts at Nomura with the bank outperforming the sector by 50 per cent. The bank has more than doubled from the doldrums of 2012.
Confidence in the earnings outlook has improved and the sector's equity risk premium has declined according to Nomura's Jon Peace.
Societe Generale reported increased profits in the second quarter from its trading and investment banking activity. With net revenues surging by 38 per cent in the three months to June, equities were also up 42 per cent.
After significant restructuring the the 9.4 per cent Basel three core Tier 1 is favourable compared to continental competitors. The bank received a further boost from the European Central Bank's (ECB) Asset Quality Review which find it's outlook improving.
The ECB's Asset Quality Review (AQR) is a key tail risk for the sector, in our view. While Russia and Romania remain a drag for SocGen, the outlook is improving, and we believe asset quality risks are much lower than for peers in Italy and Spain, which trade on similarly low P/TBV multiples.
Improving financial conditions in the Eurozone will provide hope for the bank to further improve its situation. Stocks are however still down by 30 per cent since the sovereign debt crisis began in 2011.