Societe Generale: Strategy Reshuffling Pays Off; Fair Value Estimate Up 8%

Societe Generale, the French banking giant, has seen a significant turnaround in its fortunes following a strategic reshuffling led by CEO Slawomir Krupa. The bank's earnings have improved materially, with all targets exceeded and ahead of plan. This positive performance has led to an 8% increase in the fair value estimate for the company.

Krupa's strategic initiatives have focused on cost-cutting, asset sales, and margin improvements. Since taking over in 2023, he has overseen €1.7 billion in cost cuts and €2.7 billion in asset sales, including partial exits from Africa. These measures have helped to simplify the bank's operations and strengthen its balance sheet.

The bank's strong rebound in net interest income from its French retail division, following an earlier hedging miscalculation that cost the bank more than €2 billion, has also contributed to its improved earnings performance. Additionally, the investment banking division has benefited from favorable market conditions, with revenues from the Equities business reaching a record level for a fourth quarter.

Societe Generale's cost-to-income ratio has improved to 69.4% in 2024 from 78.3% a year earlier, indicating that the bank has made progress in controlling costs. The bank's profitability (ROTE) has also improved to 6.9%, above the target of >6% expected for 2024.

The bank's strong capital build-up, with a CET1 ratio of 13.3% at the end of 2024, around 310 basis points above its regulatory requirement, has enhanced its financial stability and its ability to withstand potential economic downturns. This solid capital position has enabled the bank to increase its distribution to shareholders, with a proposed distribution of €1.74 billion, equivalent to €2.18 per share, composed of a cash dividend of €1.09 per share and a share buyback programme of €872 million.

Societe Generale's improved financial performance and increased distribution to shareholders reflect the bank's successful execution of its strategic plan. The bank's cost-cutting measures and integration projects have led to a doubling of the earnings per share and a significant increase in the distribution to shareholders. The bank's prospects for continued growth in this area are positive, with the bank aiming to further improve its performance and distribution policy in 2025.