Société Générale: A Compelling Buy Amid Political Uncertainty and Strong Self-Help Story

Société Générale’s Q2 2025 results underscore its emergence as a standout performer in the European banking sector. The bank reported group net income of €1.45 billion, a 31% year-over-year increase, translating to a 9.7% return on tangible equity (ROTE) for the quarter [1]. Over the first half of 2025, its ROTE reached 10.3%, surpassing its annual target of exceeding 8% [1]. This outperformance is driven by a disciplined cost-reduction strategy, with the cost-to-income (C/I) ratio dropping to 63.8% in Q2 2025, down from 68.4% in Q2 2024 [1]. The bank’s C/I ratio for H1 2025 stood at 64.4%, ahead of its target of below 66% [3]. These metrics position Société Générale as a leader in operational efficiency, a critical differentiator in a sector where the average efficiency ratio is expected to hover around 60% in 2025 [4].

The European banking sector, while resilient, faces headwinds from geopolitical tensions and regulatory pressures. In Q1 2025, EU/EEA banks reported a 10.5% RoE, slightly below the 10.6% recorded in Q1 2024 [1]. However, Société Générale’s ROTE of 10.3% for H1 2025 aligns closely with the sector’s upper echelon, outpacing the broader industry average of 7.65% [2]. The bank’s valuation also appears attractive. European banks trade at a 1x price-to-book (P/B) ratio [2], while Société Générale’s P/B ratio, though not explicitly stated, is implied to be competitive given its strong capital adequacy (CET1 ratio of 16.2% as of Q1 2025 [1]) and robust balance sheet.

Political and economic risks, including U.S. import tariffs and trade tensions, have heightened volatility in global markets [1]. However, Société Générale’s strategic initiatives—such as a €1 billion share buyback program and an interim dividend of €0.611 per share—signal confidence in its ability to navigate uncertainty [3]. The bank’s CEO, Slawomir Krupa, emphasized strong performance across all business lines and the successful execution of cost-reduction and revenue-growth strategies [2]. These actions reinforce the bank’s self-help narrative, a critical factor for investors seeking resilience amid macroeconomic fragility.

While the sector’s ROIC for 2025 remains unspecified in the data, Société Générale’s profitability metrics suggest it is well-positioned to outperform peers. The bank’s focus on fee income growth (up 9.5% year-on-year in Q1 2025 [4]) and trading profits (€13 billion in Q1 2025 [5]) further diversifies its revenue streams, reducing reliance on net interest income. This diversification is a strategic advantage as the sector grapples with declining net interest margins (NIM) [1].

In conclusion, Société Générale’s combination of strong profitability, efficient cost management, and proactive shareholder returns makes it a compelling buy. Despite political uncertainties, the bank’s disciplined execution and robust capital position provide a buffer against sector-wide risks. For investors, the current valuation offers an opportunity to capitalize on a European bank that is not only surviving but thriving in a challenging environment.

Source:[1] First-quarter of 2025 supervisory data shows that the EU/EEA banking sector remains robust, despite increased cost of risk, the EBA Risk Dashboard finds [https://www.eba.europa.eu/publications-and-media/press-releases/first-quarter-2025-supervisory-data-shows-eueea-banking-sector-remains-robust-despite-increased-cost][2] Unlocking Europe's Potential: How Banks Can Power ... [https://www.linkedin.com/pulse/unlocking-europes-potential-how-banks-can-power-2025-ramakrishnan-z3n6e][3] Societe Generale Q2 Earnings and Outlook, https://www.ainvest.com/news/societe-generale-q2-earnings-outlook-strong-performance-raised-targets-2508/[4] 2025 banking and capital markets outlook, https://www.deloitte.com/us/en/insights/industry/financial-services/financial-services-industry-outlooks/banking-industry-outlook.html[5] European Banks Post Record Trading Profits in 2025 [https://www.bankhawk.com/2025/05/07/european-banks-trading-profits-2025/]