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UPDATE 3-SocGen trumps profit forecasts despite decline in debt trading

* Bank in midst of revamp to boost profitability

* Expects bad-loan provisions to fall

* Shares up 2.8% (Recasts, adds analyst comment and share price)

PARIS, Feb 10 (Reuters) - French bank Societe Generale beat fourth-quarter profit expectations on Wednesday, with lower than expected pandemic-related provisions outweighing a drop in trading revenue, sending its shares higher.

Though it swung to a full-year loss of 258 million euros ($313.2 million), against a 3.25 billion euro net profit in 2019, the bank in the midst of a shake-up to improve profitabilty.

CEO Frederic Oudea is revamping SocGen’s markets business and exiting some areas after losses in structured products wiped out earnings at its equities business in the first half of last year.

While Wall Street rivals and some European banks have profited from volatility during the COVID-19 pandemic to record big jumps in fixed-income trading, SocGen suffered a downturn.

Its fourth-quarter fixed-income and currencies trading revenue was down 16% year on year, with equity trading revenue down 7%, though this was an improvement from the previous three months and better than some analysts had expected.

SocGen is due to unveil a review of its corporate and investment banking operations on May 10.

It has already exited or cut back some activities, such as commodities trading, and last year said it would gradually stop selling some structured products that have been particularly responsive to market swings during the crisis.

Analysts at Jefferies noted the drop in fixed-income revenue but said that earnings were solid overall “thanks to higher revenues, contained costs and lower provisions than expected”.

SocGen shares rose sharply in early trading and were up 2.8% at 0931 GMT.

CORNER TURNED?

Lenders globally have been grappling with the effects of the health crisis and setting aside funds to deal with loans that could turn sour, though that pressure has begun to ease in recent months.

SocGen’s fourth-quarter net income dropped by 28% to 470 million euros while revenue fell by 6%. Its cost of risk, which reflects bad loan charges, rose 85.7% year on year to 689 million euros over the period, but that was less than forecast by analysts.

Economies are expected to make a gradual recovery this year from the worst of the COVID-19 pandemic and, like French rival BNP Paribas, SocGen said bad-loan provisions should fall.

SocGen plans to pay a cash dividend of 0.55 euros per share in May, in line with recommendations set by the European Central Bank to preserve capital during the coronavirus crisis.

The lender also said it would launch a share buyback amounting to about 470 million euros in the fourth quarter of this year.

As part of initiatives to boost profitability, SocGen is merging its two retail banking networks, which will result in the closure of 600 of its nearly 2,100 branches by 2025. ($1 = 0.8237 euros)

Reporting by Matthieu Protard and Marc Angrand Editing by Sarah White, Carmel Crimmins and David Goodman

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