Q3: Poor results on the back of the NII hedge impact, Avyens miss

SocGen reported poor Q3 results undermined by a negative impact from NII hedge in French Retail Banking, the Avyens (ex-ALD) miss and non-recurring negative elements already guided for at September’s CMD. The credibility of SocGen’s strategic plan however remains intact. Time will nevertheless be needed for the new management to reach its efficiency and capital targets.

CMD 2023: a fortress in the making?

SocGen presented its new 2026 strategic plan targets at its CMD 2023 today. Although targets look disappointing versus the 2025 targets guided in Q2 22, SocGen’s new strategic plan looks committed to reducing its valuation gap with its peers over the long term. This might, however, come at the cost of short-term pain to shareholders which will see lower distribution prospects as the derisking of the bank process goes on and the targeted capital build-up takes place.

Q2: Low quality beat on costs and LLPs; poor French retail NII

SocGen posted a mixed Q2 with a low-quality beat on the back of lower LLPs and lower costs, as the top line missed on the back of a stronger-than-expected decline in French Retail Banking’s net interest income and a slowdown in Global Markets due to normalizing volatility conditions.

CIB, costs and cost of risk beat help mitigate French banking woes

SocGen realized a relatively good Q1 despite a top-line miss on the back of the again poorly-performing French Retail Banking. This was partly offset by the strong performances from CIB, Financial Services and IRB. The bottom line was further helped by strong cost discipline, a lower SRF contribution and a very low cost of risk which led the management to upgrade its 2023 cost of risk guidance from 30-35bp to below 30bp.

Q4: results beat but disappointing distribution and French Retail Banking outlook

SocGen realised an overall good Q4 as it beat consensus on both the top line and CoR but missed on costs. Nevertheless, the distribution was disappointing as the payout ratio on the underlying results amounted to 32% instead of the 50% guided, due to the bank preserving some capital to increase its CET1 ratio. Management also gave a grim outlook on French Retail Banking which is unlikely to see growth above 2022’s before 2024-25.

ALD-Leaseplan merger : launch of ALD’s capital increase

After having received the necessary regulatory approval for its acquisition of Leaseplan, ALD has launched its €1.2bn capital increase through the issuance of preferential subscription rights. This marks the final phase of the acquisition for a total consideration of €4.5bn (vs the €4.9bn initially guided in January) and allow for more synergies than previously guided (€440m run-rate cost synergies by 2025 vs €380m). The close of the acquisition is still expected in Q1-23.

SocGen-AllianceBernstein: a JV with higher risks tomorrow

SocGen and AllianceBernstein have announced the combination of their cash equities and equity research businesses in a JV 51%-owned by SocGen. Although this could increase the predictability of global markets revenue and diversify its business footprint, it could also end up being more risky than it seems as the deal gives AllianceBernstein the opportunity to exit the business in 2028, leaving SocGen with a more expensive investment in a business which is relatively less profitable than derivati

A good Q3 lifted by CIB, International Retail Banking and ALD

SocGen realised a good Q3, supported by a volatile environment in Global Markets, higher rates and good loan demand in International Retail Banking and very high used car sales for ALD. French Retail Banking was flat as NII was pressured by higher deposit costs and a lag in asset repricing due to the French usury rate. No shadows appeared on asset quality so far, despite some cautious provisioning made by management. The capital position remained healthy.

A very good Q2 performance shadowing the impact from the Rosbank exit

SocGen realized a strong Q2 with revenue beats in all divisions but more particularly CIB. CoR was also a beat, offsetting cost inflation and leading to a beat on net income despite a negative impact from the Rosbank exit. The management also outlined its 2025 targets, looking for a 3% revenue CAGR, a below 62% C/I ratio, a 30bp CoR, all leading to a 10% ROTE for a 12% CET1 ratio.

Very strong Q1 with elevated growth across the board, Rosbank nearing disposal

SocGen realised an excellent Q1 22, marked by strong activity in CIB and International Retail Banking, and a healthy one in French Retail Banking. The C/I ratio improved strongly below 2022 targets, and the cost of risk increased, including some provisions related to offshore Russian exposure while the guidance for 2022 cost of risk was increased. Capital declined but remained far above regulatory requirements. Rosbank’s disposal is set to weigh 6bp net of rating migrations impact. The rest of t

A good development, but SocGen not yet out of the Russian wood

SocGen’s decision to exit Rosbank and its insurance subsidiary in Russia is a welcomed development for the group as it clarifies its position regarding Russia and allows the bank to incur lower losses (€500m lower) than what was previously envisioned in the case of a nationalisation in our previous update. Still, SocGen is not yet out the wood as the group still has a €3.2bn direct, offshore exposure to the country (€2.4bn net of guarantees) which needs to be managed.

Looking through the fog of war

Due to the current ongoing economic turmoil in Russia and the sanctions implemented on the country’s financial and banking system, SocGen’s exposure to Russia, whether through its subsidiary Rosbank or directly, has caused its stock price to falter by near 40%. Although losses have not yet materialised, we must observe that long-term damages are becoming more certain and we should now envision what a worst-case scenario would look like for SocGen’s Russian assets.

Looking forward to 2022

SocGen released this morning its numbers for Q4 21. This was another good quarter for the company, easily beating consensus expectations. SocGen therefore reached a record-high level of net profit for FY2021. The level of capital is well above requirements enabling a more than decent dividend and the outlook for FY2022 looks bright as well (C/I ratio expected below expectations). We remain very positive on SocGen and will revise upwards our EPS for 2022 and 2023.

A transformational deal

SocGen, via ALD, announced last week that it has closed the acquisition of Leaseplan, creating Europe’s biggest car leasing company. This will transform SocGen’s business model as the leasing division will be central to the bank together with the Retail banking/Insurance and CIB activities. An optimistic view of the deal, beyond plain financial numbers, is that it should support SocGen’s rerating from a non-profitable utility to a growth company (vehicle electrification and data).

Another strong quarter

Societe Generale (SocGen) released this morning its numbers for Q3 21. These were much better than expected and better than those of BNP Paribas in relative terms. The beat was driven by all operating divisions, among which French retail banking had another strong quarter. The merger between SocGen’s two French retail networks (SocGen and Credit du Nord) is, besides, also going on. The CET1 ratio at 13.4% was above expectations. On the negative side, SocGen’s CFO will leave the company.

Morning Note – 22 April 2024

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