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Sub-sector: Insurance
Société Générale
- Sector: Financial Services
- Sub Sector: BanksInsuranceSpecialty Finance
- Region: EuropeFrance
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Fundamental View
AS OF 04 Dec 2023- SocGen’s business is not geared to benefit significantly from the higher rate environment, given the quirks of the French market. Its investment banking business is doing well and looks less risky these days.
- The sale of its Russian businesses entailed a large write-down in 1H22, but it had a minimal capital impact and has benefited SocGen’s credit profile.
- Capital ratios have improved sizeably in recent years, making its MDA cushion comfortable.
- Asset quality also looks good, with a relatively low cost of risk and decreasing non-performing loans.
Business Description
AS OF 04 Dec 2023- SocGen is one of the leading retail and commercial banks in France and is also active in corporate and investment banking internationally. It has strong franchises in equipment financing, car leasing and fleet management.
- Its operations are split into French Retail Banking, Private Banking & Insurance, International Retail Banking, Mobility & Leasing Services, Global Banking & Investor Solutions, and a Corporate Centre.
- Retail banking in France includes the Société Générale, Crédit du Nord and Boursorama brands. In December 2020, it announced the merger of the Société Générale & Crédit du Nord networks, largely in order to reduce the number of branches.
- International Retail Banking includes operations in Western Europe, Czech Republic, Romania, Africa/Asia & Other Mediterranean regions.
- The acquisition of LeasePlan, and Boursorama’s agreement to take over ING’s French retail business, highlight SocGen’s determination to extend its franchise.
Risk & Catalysts
AS OF 04 Dec 2023- Exposure to Russia has been managed down significantly. While not completely gone, it now makes up only a small percentage of the bank’s balance sheet.
- It has substantial investment banking and capital markets operations that are somewhat less diversified than those of peers, but the business’s risk profile has improved.
- Trends in retail banking remain subdued, not helped by low rates and a changing operating environment, although management has already implemented changes in its French business.
- Our central scenario is that earnings will be lumpy for a little while. We expect SocGen to reshape the perimeter of its business operations several times over the next 12-24 months.
Key Metric
AS OF 04 Dec 2023| € mn | 3Q23 | Y22 | Y21 | Y20 | Y19 |
|---|---|---|---|---|---|
| Return On Equity | 1.7% | 2.8% | 8.9% | (0.4%) | 5.2% |
| Total Revenues Margin | 1.6% | 1.8% | 1.8% | 1.6% | 1.9% |
| Cost/Income | 70.4% | 66.3% | 68.2% | 75.6% | 71.9% |
| CET1 Ratio (Transitional) | 13.3% | 13.5% | 13.7% | 13.4% | 12.7% |
| CET1 Ratio (Fully-Loaded) | 13.2% | 13.5% | 13.6% | 13.2% | 12.7% |
| Leverage Ratio (Fully-Loaded) | 4.2% | 4.3% | 4.8% | 4.7% | 4.3% |
| Liquidity Coverage Ratio | 147% | 145% | 129% | 153% | 124% |
| Impaired Loans (Gross)/Total Loans | 3.3% | 3.1% | 8.6% | 3.7% | 3.5% |
CreditSight View Comment
AS OF 10 Jan 2024SocGen’s main business divisions have seen good growth post-COVID 19 and improving profitability, helped by rising interest rates. Global Markets earnings have been volatile over the years, but trading income has been strong in recent periods. Asset quality ratios are good, all things considering. Its financial services business – mainly auto leasing, helped by the acquisition of LeasePlan, has been making an increased contribution. The outlook for French Retail is quite weak until 2024. Capital and leverage ratios look much better than they did in the past. We moved its Tier 2 to Cheap from Fair, and its AT1 from Cheap to Fair, on 10 January 2024.
Recommendation Reviewed: January 10, 2024
Recommendation Changed: May 12, 2023
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