Société Générale: French bank catches the eye for wrong reasons

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Paris trumpets its success in luring away London-based bankers post-Brexit. That same magnetism does not apply to investors and Société Générale. If anything the polarity has reversed. This once pre-eminent French institution has suffered a consistent erosion of its market reputation. Investors have deserted this bank. Third-quarter results did nothing to dispel the gloom.

SocGen’s new chief executive Slawomir Krupa did not impress with his September strategy presentation that promised moderate profitability years from now. It has a common equity tier one ratio of 13.3 per cent. Hence neither large shareholder payouts nor big restructuring write-offs will play well with the European Central Bank. Typically, European banks hold about 15 per cent, points out Barclays.

Third-quarter figures brought no cheer. A messy result came with one clear downgrade due to its French retail banking. The bank’s full-year net interest income forecast was downgraded again. SocGen expects the year-on-year decline to exceed 20 per cent. At least its investment bank’s advisory unit showed some life.

SocGen is persistently one of Europe’s cheapest banks, trading at about 30 per cent of its tangible net assets. That of the Stoxx 600 banks index touches double that, and the gap is growing. Shareholders doubt that much, if any, money will come their way soon from its new chief executive.

Perhaps the bank could make disposals that would free up funds to distribute to shareholders? That seems unlikely. It has profitable eastern European banking units but needs those earnings. Using SocGen data, its Europe ex-France businesses year-to-date made four times the group’s after-tax return on capital, while bringing in a fifth of group profit. The group’s much higher cost of equity approaches 20 per cent.

So-so profitability and just enough capital give SocGen very little wriggle room should problems arise. A healthy dose of wariness is warranted.