Societe Generale, one of the largest French banking groups, has unveiled its new strategic plan for the next five years, under the leadership of its new CEO Slawomir Krupa. The plan, which was announced on Monday, September 18, 2023, focuses on reducing costs, improving efficiency, strengthening capital, and simplifying the business portfolio.
Cost-cutting measures
SocGen said it would cut its cost-to-income ratio, a key measure of a bank’s efficiency, to less than 60% by 2026, from 75% in the second quarter of 2023. This would entail reducing costs by about €1.7 billion ($2 billion) by 2026, compared with last year. The bank also said it would book transformation charges of about €1 billion ($1.2 billion) over the next three years.
The cost-cutting measures would affect various businesses and regions, including:
- Merging its retail network in France with that of its Credit du Nord unit, resulting in the closure of about 600 branches and the elimination of 3,700 jobs between 2023 and 2025.
- Selling four African units and reviewing a fifth one on the continent.
- Exploring a sale of its equipment finance unit, which could fetch a valuation of more than €1 billion ($1.2 billion), according to sources.
- Reducing its exposure to upstream oil and gas businesses by 80% by 2030 when compared to 2019.
Profitability and capital targets
SocGen also said it would target a return on tangible equity ratio (ROTE) of 9% to 10% by 2026, up from a reported 5.6% ROTE at the end of June 2023. This would be based on annual revenue growth expectations between zero and 2% by 2026.
The bank also aims to increase its common equity tier 1 (CET1) ratio, a key measure of financial strength, to 13% by 2026, almost on par with the 13.1% reported at the end of June 2023. However, this would include the expected additional requirements under global bank capital rules laid out by the Basel Committee of banking regulators.
The bank also adjusted its payout policy, pledging to return between 40% to 50% of its reported net income to shareholders in dividends and buybacks from 2024 onwards. This is slightly lower than its previous pledge of returning half of its underlying profit to shareholders.
A new vision for SocGen
Krupa, who took over as CEO in May 2023, said he wanted to make SocGen a “rock solid” bank after years of lackluster performance. He said he would streamline the bank’s activities and focus on its core strengths, such as financing and investment banking, international retail banking, and specialized financial services.
“We will strengthen the group by shaping a simplified business portfolio, while taking the right actions to build-up capital and increase flexibility, structurally improve our operating leverage and maintain our best-in-class risk management”, Krupa said in a statement.
SocGen has faced several challenges in the past decade, such as heavy losses from a rogue trader on the eve of the 2008 financial crisis, a costly exit from Russia in the wake of the invasion of Ukraine last year, and concerns over its reliance on volatile investment banking revenues.
The bank’s shares have underperformed its peers in recent years, trading at the biggest discount to book value among major European investment banks. On Monday, SocGen’s shares fell more than 6% after the announcement of its new strategy.