PARIS, Sept 20 (Askume) – Societe Generale (SOGN.PA) Chief Executive Slawomir Krupa will further control costs and pursue a turnaround strategy announced a year ago, but so far the strategy has failed to revive the ailing French bank.
Societe Generale, one of Europe’s cheapest listed banks, is trading below 30% of its book value despite plans to cut costs by 1.7 billion euros ($1.9 billion) by 2026 and sell more than 2.7 billion euros of assets.
The sale includes a stake in its Guinea business announced on Friday, as well as the April sale of its specialty equipment financing business, which generated $1.2 billion in revenue.
Now the bank is tightening budgets across all divisions and encouraging middle managers to take further action beyond just meeting cost targets, a person familiar with the matter said.
Among other measures, business travel has been restricted and the scope of IT services has been reduced, sources said.
Societe Generale declined to comment for this article.
Romain Burnand, chairman of Moneta Asset Management, which owns 0.46% in the bank, said cost-cutting measures are starting to be implemented, according to LSEG data for the results, adding he is betting third-quarter results will improve.
“(Last quarter’s) results were really disappointing. But we think valuations have come down considerably and the bank has strengths,” said Bernande, whose stake in Societe Generale in his main fund is worth about 1.8 billion euros.
The CEO opted to increase the bank’s capital reserves rather than seek quick returns or transformational asset sales. The Ginni deal will have a positive impact of about 2 basis points on the bank’s common equity Tier 1 ratio, a key measure of financial strength.
Krupa pushed back key profit targets by a year, dashing investors’ hopes for higher returns. He’s targeting a return on tangible equity of between 9% and 10% by 2026, with dividend growth rates limited to 40%-50%.
“I wouldn’t say they won’t achieve their targets, but we can only know they will achieve their targets when we start to see a reasonable turnaround in profits, especially in French retail banking. But so far, that hasn’t happened yet.”
“It’s not a question of ambition,” said Olivier Casse, head of European core equity strategy at Sycamore AM, which owns 0.4% in Societe Generale, according to LSEG data. “The new CEO wants to address capital issues.”
That means fewer share buybacks and lower dividends, which puts pressure on share prices. Societe Generale shares closed at 22.9 euros on Thursday, down from around 26 euros before the strategic review was announced in September last year.
French retail industry
Another concern is Societe Generale’s retail business in France, where the bank cut a key target in August , hurting the bank’s second quarter profit and weighing on its shares.
French banks, including Societe Generale, have not benefited much from higher interest rates due to high deposit costs in the country. Societe Generale also suffered from a miscalculated interest rate hedging policy.
The bank’s net interest income (NII), which is the difference between a bank’s loan income and deposit payments, was hit, forcing it to cut its previously set target.
“They cannot reassure us about the trajectory of spreads in the second half and in 2025,” Cass said.
“The execution was fair, there was just miscommunication,” Sebastiano Pirro, chief investment officer at hedge fund Algebris Investments, said of the CEO’s plans, according to London Stock Exchange Group shares.
Societe Generale’s problem, he said, was weak profitability and too little capital to significantly cut costs.
Takeover speculation
Bank shares were boosted by UniCredit’s CRDI.MI stake in Commerzbank CBKG.DE , with analysts speculating that Societe Generale could become a takeover target.
Two investment bankers covering Europe’s financial sector dismissed the idea, saying Societe Generale’s exposure to France’s low-margin retail market makes it unattractive.
A takeover by bigger rivals BNP Paribas (BNPP.PA) or Credit Agricole (CAGR.PA) would raise hurdles such as antitrust concerns and employment scrutiny by French authorities, bankers said .
(1 USD = 0.8959 EUR)
