Société Générale heavily penalized by the rise in rates in 2023

It was a baptism of fire for Slawomir Krupa. This is in fact the first time that the general director of Société Générale, in place since last May, has presented the annual results of the third French bank by market capitalization. He knew he was waiting around the corner. On September 18, its strategic plan until 2026 disappointed investors, to the point that the stock price fell by 12% in one session.

However, the performances published this Thursday are mixed. In 2023, Société Générale generated a net profit of 2.5 billion euros (37%, but after an exceptional year 2022 which was penalized by the exit from Russia), very far from its competitors BNP Paribas (nearly 11 billion euros) and Crédit Agricole (8.25 billion euros). And above all, its fourth quarter results plunged 60% year-on-year. Revenues fell by 7.6%. The group's profitability on equity fell to 4.2%. “2023 was a year of transition and transformation,” summarized Slawomir Krupa in a press release.

Retail banking activities in France, now bringing together the former Société Générale and Crédit du Nord networks under the SG brand, particularly suffered last year, penalized by the rise in interest rates. Its revenues fell by another 13% in one year. Because fixed rates dominate in France, the real estate loan portfolios of French banks have not yet fully benefited from the rise in rates. Only new loans granted are affected by the change. Aggravatingly, the increase in the remuneration of the livret A to 3% has increased the cost of the resource (deposits) used by banks to lend. But the bank with the red and black logo was above all the victim last year of a poor rate hedging policy: at the start of 2022, the group in fact decided to hedge, and for a period of two years, against a possible... drop in rates. However, the opposite happened and the group recorded a loss in the third quarter and fourth quarter.

In 2023, Société Générale's two new drivers also experienced contrasting developments: BoursoBank (formerly Boursorama), continued its momentum, reaching 5.9 million customers. On the other hand, its automobile leasing subsidiary Ayvens (formerly ALD Automotive), which digests its competitor Leaseplan purchased in 2022, stalled at the end of the year. Its revenues fell by 17% in the fourth quarter. Over the whole of 2023, they increase by 16%.

The group wants to be more optimistic for 2024. The stakes are high. On the stock market, Société Générale is only valued at 18 billion euros, three times less than BNP Paribas. “This valuation only represents 27 times its book value,” underlines Jérôme Legras, head of research at Axiom AI.

Slawomir Krupa is working to try to recover the share price. “The group's management must demonstrate its ability to reduce the cost structure and restore its profitability in a sustainable manner,” says Rafael Quina, senior director of the rating agency Fitch Ratings. Presenting his strategic plan in September, the general director announced that he wanted to reduce the group's costs by a total of 1.7 billion euros by 2026, including around 600 million in IT services alone. The first cuts were announced at the start of the week: 947 positions will be eliminated at the Société Générale headquarters in La Défense, particularly in IT. A total of 500 million euros must be saved in 2024.

The strategic plan also involves improving risk management, more efficient allocation of equity capital and rationalization of the business portfolio. The bank has started to clean up Africa. It announced its disengagement from Congo, Equatorial Guinea, Mauritania, Chad, Burkina Faso and again from Mozambique. Slawomir Krupa would be ready to increase asset sales. Rumors are rife about the future of the securities custody business Société Générale Securities Services (SGSS), of the subsidiary Société Générale Equipment Finance (SGEF), intended for specialized financing for businesses, or of the neobank dedicated to entrepreneurs Shine, purchased in 2020. But these disposals would not be easy to achieve in the current context. However, investors are getting impatient...