Societe Generale SA cut targets for revenue growth and profitability as Chief Executive Officer Slawomir Krupa focuses on costs and building up capital buffers to revive the stock.
(Bloomberg) — Societe Generale SA cut targets for revenue growth and profitability as Chief Executive Officer Slawomir Krupa focuses on costs and building up capital buffers to revive the stock.
In the first strategy update under the new CEO, SocGen set a goal for average revenue growth of between zero and 2% over the next three years, and slightly lowered a key return metric that some analysts had expected the lender to raise. Instead, Krupa raised the target for a key measure of capital that had limited the lender’s room to return act.
The 49-year-old former investment banking boss, took over four months ago with a mandate from Chairman Lorenzo Bini Smaghi to increase efficiency and boost the valuation. SocGen’s shares trade at the biggest discount to book value among major European investment banks, having dropped 42% under Oudea when including reinvested dividends, compared with gains at rivals BNP Paribas SA and Credit Agricole SA.
Shares of SocGen slumped as much as 7.1% in Paris trading, with analysts saying they were disappointed by the cut to the revenue outlook, profitability target and lack of detail on asset disposals.
“SocGen reported an underwhelming update,” Thomas Hallett and Andrew Stimpson at Keefe Bruyette & Woods wrote in a note. “The longer term, structural issues also remain.”
To reach the new targets, SocGen will limit organic growth in risk weighted assets to less than 1% a year, a key pillar of Krupa’s plan to improve the allocation of capital. The bank also plans to cut costs by about €1.7 billion by 2026, compared with last year, in part by improving the IT systems. That will result in transformation charges of about €1 billion over the next three years.
Krupa cut the outlook for revenue growth as he seeks to shrink or even dispose of some activities. The bank already announced disposals in four African countries, with a fifth unit put under review. In addition, the lender is exploring a sale of its custodian unit, which could fetch a valuation of more than €1 billion, Bloomberg reported previously. SocGen sees the business as too small, and its fate has been the subject of speculation for years.
What Bloomberg Intelligence Says:
Societe Generale’s focus on capital buildup and cost cutting — in the new strategic objectives set out by CEO Slawomir Krupa — come at the expense of revenue growth (with just 0-2% targeted through 2026) and profitability (9-10% return on tangible equity), making consensus upgrades unlikely. Disappointingly, there are no major plans to restructure or refocus the struggling investment bank, which is compounded by the lack of a boost to share buybacks, as caution outweighs growth hopes.
— Philip Richards, BI banking analyst
SocGen 9-10% Profit Goal, Caution Risks Disappointment: React
Krupa also adjusted SocGen’s payout policy, pledging to return between 40% to 50% of its reported net income to shareholders, instead of half of its underlying profit. The bank missed out on that dividend pledge for last year, deciding to hold onto a bigger portion of earnings after its multibillion exit from Russia hit profit.
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