Despite its investment bank division’s strong performance, Societe Generale (SOGN.PA), the third-largest listed bank in France, underperformed market expectations on quarterly sales on Friday. This was due to a decline in the company’s French retail business.

Group revenues decreased by 6.2% from the previous year to around 6.2 billion euros, falling short of the 6.3 billion euro average of 13 analyst predictions the business had gathered.

Higher rates on French banks’ net interest income (NII)—earnings on loans minus the cost of deposits—have not helped much because of strict rules on setting mortgage rates and a government-set rate on the country’s most popular savings account.

Except for two regulated savings accounts, NII at the French retail segment dropped by 27% in the quarter, “well below expectations,” according to a letter from JP Morgan to clients.

According to the French lender, the NII of its retail, private banking, and insurance businesses in France is expected to decline by over 20% by 2023. It anticipates that the same important statistic will surpass or remain at the 2022 level in 2023.

Hedging arrangements to protect against the risks associated with low interest rates also contributed to the decline in the French retail division’s quarterly profitability. According to SocGen, this adverse impact peaked in the third quarter.

The group’s net income is above the 168 million-euro expert expectation, at 295 million euros ($313.2 million). In addition to a 270 million euro provision for deferred tax assets, the bank recorded 340 million euros in write-downs related to several of its operations, which resulted in an 80% decrease from the previous year.

SocGen’s financial setbacks were noted during the bank’s September investor day. Due to a mixed performance bag, Jefferies deemed SocGen’s quarterly profits “dull.”

MEAGER INCREASE

Slawomir Krupa, the CEO of SocGen, took over the company’s leadership in May and is working to restore the bank’s stock price by meeting the cautious and cost-cutting goals he announced in September.

However, investors who anticipated more significant returns to shareholders found his mid-term plans, which include a low yearly revenue growth target of 0 to 2% by 2026, to be disappointing, which caused shares to drop by more than 10%.

This year—which SocGen has labeled a year of “transition”—is notable for the bank’s listed competitor ALD (ALDA.PA) integrating the car-leasing firm LeasePlan at a high cost under the moniker Ayvens. Additionally, the bank has combined its two retail networks in France.

Costs have increased due to the two deals at a time when, in sharp contrast to other European nations, the French retail market produces smaller profits despite the fastest-ever increase in interest rates.

In this regard, SocGen’s investment bank’s 0.4% revenue decline is comparable to some of its European competitors.

While less volatile financial markets impact investment banks’ profitability, revenue from trading in fixed income and securities fell 4.6%, outpacing that of larger French competitors BNP Paribas (BNPP.PA), Deutsche Bank (DBKGn.DE), and Barclays (BARC.L).

Sales in the corporate finance and advising segment increased by 2.1%, contributing to the division’s 7.7% increase in net profit over the same period. SocGen reduced its projection for its cost of risk, or the amount set aside for bad loans, from below 30 basis points to “below 20 basis points” for the entire year.