SocGen shares fall after lowering targets

3 mins read

Societe Generale SA faced a sharp decline, marking its most significant setback in six months, as investors reacted with surprise to Chief Executive Officer Slawomir Krupa’s inaugural strategy update. The French banking institution unveiled its new direction on Monday, targeting annual revenue growth ranging from zero to 2% over the next three years, a stark departure from the previous minimum of 3%. Additionally, the bank modestly revised down its return on tangible equity goal, a move that contradicted some analysts’ expectations. Krupa also detailed forthcoming cost reductions and his intention to bolster the bank’s capital reserves.

Analysts Thomas Hallett and Andrew Stimpson at Keefe Bruyette & Woods delivered a less-than-enthusiastic verdict, deeming Societe Generale’s update underwhelming. They also pointed to lingering structural challenges that continue to plague the institution.

Societe Generale saw its stock plummet by as much as 11% in Paris trading, a sharp decline reminiscent of the downturn experienced in March, effectively erasing all gains made since Krupa assumed his role as CEO. Market commentators expressed disappointment with the revenue projection, profitability target, and the dearth of specifics regarding asset disposals.

At 49 years of age, Krupa, a former investment banking luminary, took the reins just four months ago, propelled by a mandate from Chairman Lorenzo Bini Smaghi to enhance operational efficiency and elevate the bank’s valuation. Societe Generale’s shares currently trade at the most substantial discount to book value among major European investment banks. Notably, they have plummeted by 42% under the tenure of his predecessor, Frederic Oudea, when including reinvested dividends, in stark contrast to the upward trajectory seen at competitors BNP Paribas SA and Credit Agricole SA.

Krupa recalibrated the bank’s return on tangible equity target to a range of 9% to 10%, which falls short of the benchmarks set by Deutsche Bank AG, exceeding 10%, and BNP Paribas, at 12%. Both rivals have set ambitious timelines to attain those figures, aiming to reach them a year earlier than Societe Generale.

As part of the new CEO’s strategic vision to optimise capital allocation, Societe Generale will restrict organic growth in risk-weighted assets to less than 1% annually. Additionally, Krupa intends to pare costs by approximately €1.7 billion, partially through enhancements to the bank’s information technology infrastructure. This transformative effort will come at a cost, with transformation charges estimated at around €1 billion over the next three years.

Krupa’s efforts to streamline and refocus the bank prompted a downgrade of the revenue growth outlook, underlining his resolve to scale down or exit certain activities. Societe Generale has already announced divestitures in four African nations, with a fifth unit now under review. Furthermore, the bank is actively exploring the sale of its custodian unit, a move that could potentially fetch a valuation surpassing €1 billion, as reported by Bloomberg previously.