By Mathieu Rosemain

PARIS (Reuters) -Societe Generale shares fell more than 5% on Friday after the bank's CFO flagged that net interest income in 2024 from the group's French retail business would be at the lower end of guidance.

The French bank's shares had earlier gained more than 5%, hitting their highest since March 2023, after SocGen reported first-quarter results that beat analysts' forecasts.

"We are today at the lower range of this guidance and of our projections," Chief Financial Officer Claire Dumas told analysts, referring to the retail business.

SocGen had previously given guidance that the retail businesses net interest income to reach a level at least equal to 2022.

Several analysts pressed Dumas on the French retail division's prospects, asking for more details on the business whose results are bundled with private banking and insurance.

"The market was a little bit concerned about the NII guidance," said Johann Scholtz, an analyst at Morningstar. "I think that is probably what is driving the weakness," he said, referring to shares.

French banks, including SocGen, have not benefited as much from the rise in central bank interest rates because of the high cost of deposits in France. Their shares have underperformed, although analysts expect them to do better when rates fall.

SocGen shares are up just 2% so far in 2024, following Friday's fall. That compares with a 17% gain for the STOXX Europe Banks 600 index.

The bank said in its first-quarter results presentation that NII at its French retail, private banking and insurance division was up 3% from the last quarter of 2023 to 822 million euros, "at the lower-end of the range of projected."

SocGen, whose French retail activity has more weight on its earnings than bigger rival BNP Paribas, said a transfer from sight deposits to regulated savings account with a fixed interest rate weighed on its results.

This came on top a costly hedging policy aimed at protecting the bank against low rates but which backfired. It cost SocGen 300 million euros in the first quarter, on top of 1.6 billion euros in 2023.

It said it expected about 150 million euros additional drag from these short-term hedges in the second quarter before being done with them.

A recent study by UBS found that French deposits were the most expensive in Europe when rates were negative. But they increased in cost just as quickly as the European average when rates and inflation rose.

UNAUTHORISED BETS

SocGen's CEO Slawomir Krupa defended the bank's risk controls on Friday after news this week that two traders in Hong Kong had left the bank late last year when they were found to have made unauthorised bets via options contracts tied to Indian stocks.

Krupa told reporters the trades were "normally detected by the control system".

SocGen's first-quarter earnings fell less than expected as profits on equity derivative sales offset weaknesses at its retail bank and in fixed-income trading.

France's third-biggest listed lender said group net income over the first three months of the year was 680 million euros ($729 million).

This was down 22% from a year earlier but still beat the 463 million euro average of 15 analyst estimates compiled by the company. Sales slipped 0.4% to 6.65 billion euros, above analysts' 6.46 billion euro average estimate.

French rival Credit Agricole, which also reported earnings on Friday, posted a forecast-beating 55% jump in first-quarter net profit, driven by corporate and investment banking sales.

Helped by euro zone interest rates remaining higher for longer than expected, many European banks have beaten expectations for the first quarter, and some have raised profit targets for the year.

Krupa, who took over just a year ago, has pledged to revive shares by trimming costs, while selling non-core assets and investing to deploy online bank BoursoBank and car-leasing group Ayvens.

($1 = 0.9324 euros)

(Reporting by Mathieu Rosemain;Additional reporting by Piotr LipinskiEditing by Ingrid Melander, Kim Coghill, Mark Potter and Jane Merriman)