Societe Generale's CEO aims to boost bank's valuation, despite challenges

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Societe Generale's CEO aims to boost bank's valuation, despite challenges
Credit: © Reuters.

Societe Generale (OTC: SCGLY ) SA's CEO, Slawomir Krupa, is expected to outline his strategy to increase the bank's stock value and efficiency on Friday, which currently holds the largest discount to book value among major European lenders. The announcement follows a 34% rally in SocGen shares since a March low, with market analysts suggesting that the investor day in London could drive the stock further.

However, concerns linger over SocGen's low price-to-book ratio, which Krupa will need to address. The bank has faced significant challenges in recent years due to strategic missteps and individual errors, falling behind competitors BNP Paribas (OTC: BNPQY ) SA and Credit Agricole (OTC: CRARY ) SA. These issues include a focus on investment banking during a period of regulatory changes making the sector less profitable and a €3 billion hit from exiting Russia last year.

Krupa, who took over as CEO in May, has shown determination to improve SocGen's share price. However, analysts caution that his options may be limited due to a relatively weak capital cushion compared to peers. This makes it unlikely for SocGen to join other European lenders in raising payouts to investors.

In his strategy update, Krupa hinted at streamlining operations and potentially disposing of certain activities. The bank has already announced disposals in four African countries and put another unit under review. It is also exploring the sale of its custodian unit, potentially valued at over €1 billion.

Chairman Lorenzo Bini Smaghi has emphasized the need for more efficient capital allocation and a reduction in the cost-to-income ratio. SocGen ranks as the second-least efficient bank among major European lenders with a cost-to-income ratio of 70.5% in the latest quarter.

Efficiency improvements are already being implemented at the investment bank, including travel rules limiting business trips to three days with a minimum of four client meetings.

Strategic changes initiated under former CEO Frederic Oudea's leadership should assist Krupa in achieving his targets. These include a partnership with AllianceBernstein (NYSE: AB ) in cash equities and research, reducing SocGen's dependence on derivatives. The merger of its domestic retail networks is expected to bring costs down, with anticipated savings of about €450 million annually by 2025. Additionally, the acquisition of car leasing firm Leaseplan is projected to add another €440 million in savings.

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