📈 69% of S&P 500 stocks beating the index - a historic record! Pick the best ones with AI.See top stocks

SocGen shares plummet after new CEO's strategy disappoints

Published 14-08-2024, 02:04 am
© Reuters. FILE PHOTO: People walk past a logo of French bank Societe Generale in front of the company's skyscraper at the financial and business district of La Defense near Paris, France September 14, 2023. REUTERS/Gonzalo Fuentes/File Photo
BNPP
-
SOGN
-

By Mathieu Rosemain

LONDON (Reuters) -Societe Generale's shares plunged more than 9% on Monday after France's third-biggest listed bank said it expected little if any growth in annual sales over the coming years in a keenly-awaited strategic plan from its new CEO.

Slawomir Krupa, who took over in May, has been charged with reviving a bank that has slipped behind French leader BNP Paribas (OTC:BNPQY) and some other European rivals amid a costly exit from Russia and amid concerns it is too reliant on volatile investment banking.

Monday's plan, which had been touted by the bank for months, did not live up to expectations, analysts said, voicing disappointment on a wide range of issues including growth projections, prospects for dividends and a lack of detail on asset sales.

Return on tangible equity (ROTE), a key profitability target, was a shade below the bank's previous one, as was its shareholder payout goal. And, while its cost cutting target was more ambitious, it saw annual revenue growth of just 0-2% from 2022-26.

"We are negatively surprised by lack of revenue growth, increased capital target, payout & ROTE cut, and by the lack of details," Jefferies analysts said in a note.

Krupa shrugged off the negative market reaction, defending his choice to set conservative targets to cement his credibility.

"It's the right plan for the bank for decades to come," he told reporters, stressing that delivering on targets "was key" for him, after, he said, the bank had often failed to convince markets on that front.

"This is the best, most honest assumption about what we think we will deliver," he told analysts.

There would be "no sense whatsoever to come up here and target something that will raise questions ... that's not how I work," he said, adding: "We have thought abut this extremely carefully."

Shares, which dropped at the open, remained sharply lower after his comments. They were down 9.5% at 1030 GMT, wiping about 2 billion euros ($2.1 billion) off the bank's market value.

SocGen's challenges highlight the predicament of French banks, which tend to benefit later than European peers from interest rate rises because of the dominance of fixed-rate mortgages in France and government limits on passing on rate hikes - a particular problem as the global economy struggles.

SocGen now targets a 9-10% ROTE in 2026, and paying out 40-50% of reported net income to shareholders in dividends and buybacks from 2023 onwards. It had previously expected ROTE to reach about 10% in 2025 and a payout ratio of 50%.

'UNDERWHELMING'

Krupa, a SocGen veteran whose track record leading its investment bank - where he cut risk-taking and costs - helped him win the tight race to lead the group, said he would streamline the bank's activities, but didn't elaborate.

"We will strengthen the group by shaping a simplified business portfolio, while taking the right actions to build-up capital and increase flexibility, structurally improve our operating leverage and maintain our best-in-class risk management", he said in a statement.

The share price decline put SocGen on course for the biggest one-day drop since March.

Exane called the goals "underwhelming," while JP Morgan analysts said in a note the targets were below consensus in terms of revenue expectations but that they welcomed the focus on cost and a "prudent approach on revenues".

"It will take time for the shares to discount the cost improvement given SG's mixed track record," they said. "The new CEO will have to earn investor goodwill through delivery."

Krupa vowed to cut costs by 1.7 billion euros by 2026 compared to 2022, 40% of which are new gross savings beyond already announced synergies, notably from the merger of SocGen's two retail brands in France.

The bank didn't give any update on the potential sale of non-core assets after Krupa said last month he intended to run a "tight ship" in terms of the bank's portfolio.

Krupa acknowledged this would be frustrating for some, but said it wasn't in the bank's best interest to tag specific assets for sale.

SocGen has said it will sell four units in Africa and review a fifth one on the continent. It is also open to a sale of its equipment finance unit, sources have told Reuters.

The bank said the new strategy would lead to write-downs for the remaining part of its African, Mediterranean and Overseas activities, as well as its Equipment Finance division, worth a total of about 340 million euros.

It also said it would reduce its exposure to upstream oil and gas businesses by 80% by 2030 when compared to 2019.

© Reuters. FILE PHOTO: People walk past a logo of French bank Societe Generale in front of the company's skyscraper at the financial and business district of La Defense near Paris, France September 14, 2023. REUTERS/Gonzalo Fuentes/File Photo

SocGen trades at about a third of its book value, almost on par with Deutsche Bank (ETR:DBKGn) but half the multiple of its bigger BNP Paribas and Italy's UniCredit.

($1 = 0.9370 euros)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.