Continue today … Société Générale – 08/03/2022 at 08:27

(AOF) – In the second quarter, Société Générale suffered a net loss, group share, of 1.48 billion euros against a profit of 1.44 billion euros the previous year. The market expected a loss of around 2 billion euros. This loss reflects the € 3.3 billion pre-tax impact of its exit from Russia. Excluding the exceptional elements, the French bank achieved a net profit, group share, of € 1.5 billion.

The brokerage margin increased by 12.8% to 7.065 billion euros.

The group now expects an underlying cost / income ratio, excluding the Single Resolution Fund, of between 64% and 66% in the year 2022.

For its part, the cost of risk jumped by 52.8% to 217 million euros. represents a low of 15 basis points in outstanding customer loans. In the year 2022, the cost of risk is still expected to be between 30 and 35 basis points.

The core capital ratio (CET 1) stood at 12.9% at the end of June 2022, approximately 360 basis points above the regulatory requirement.

“By 2025, after having reaped all the benefits of the numerous strategic and operational efficiency initiatives underway, we confirm our ability to achieve a profitability of 10% on the basis of a core tier one target of 12%, while maintaining an attractive distribution policy for our shareholders “. said Fréderic Oudéa, managing director. Profitability was 10.5% in the second quarter.

Société Générale thus maintains its policy of distributing 50% of the underlying net profit, group share, with a maximum of 40% of the distribution in the form of share repurchases.

At the General Assembly on May 17, 2022, Frédéric Oudéa, Chief Executive Officer since 2008, announced that he would not request the renewal of his mandate as Director and Chief Executive Officer in May 2023. The name of his replacement is expected to be known in the autumn.

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Key points

– Bank founded in 1864, one of the leading European financial services groups;

– Net banking income of 25.8 billion euros generated by retail banking in France – Société Générale, Crédit du Nord and Boursorama brands, international retail banking, financial services and insurance, then retail banking customers and solutions for investors;

– Business model at the forefront of positive transformations: a 100% digitized bank, open platforms and architectures, winner of the race for European leadership;

– Capital characterized by the presence of employee shareholders (6.65% and 11.9% of the voting rights), with a board of directors of 16 members chaired by Lorenzo Bini Smaghi, with managing director Frédéric Oudéa;

– Strong balance sheet with € 65.1 billion of equity, a CET 1 ratio of 13.7%, a liquidity coverage ratio of 129%, a leverage ratio of 4.9%, hence a rated debt TO .

Challenges

– Vision 2025 strategy, based on the merger with Crédit du Nord, local roots, responsiveness, adaptation to customer needs and responsibility:

– Innovation strategy rooted in the group’s DNA, focused on the emergence of a data-driven bank through artificial intelligence: 200 million euros of annual value creation through data and AI / 8/10 of servers in the cloud (2025 cloud of “second generation” objectives, of which 50% in private cloud and 25% in public cloud / new business models -Shine for individual customers, Forge for digital obligations, reezocar for vehicle rental and treezor, platform payment and digital currencies;

– Environmental strategy aimed at becoming the world leader in sustainable finance with 2 axes: integration of criteria in all activities: offer of 100% responsible savings, support to customers in their energy transition and structuring of solutions around hydrogen … / commitment for sustainable transition: 10% reduction in global exposure to oil and gas extraction by 2025, complete exit from thermo-coal by 2030-40 and by 2023 from loans guaranteed by reserves, or +150 billion euros of assets energy transition;

– Continued integration of the Crédit du Nord, finalized in 2023;

– After the refocusing of activities, financial willingness to refocus on mobility (purchase of LeasePlan by the subsidiary ALD and discussion on Boursorama’s offer of alternative banking services to ING’s French customers).

Challenges

– Net equity per share of 68.7 euros, to be compared with the stock market price;

– Impact of the Russia-Ukraine war: sale of the stake in Rosbank, with consequent reduction of the CET ratio to 13.5% and depreciation of net profit of approximately 2 billion euros;

– targets for 2022 of a sharp increase in the cost / income ratio between 66 and 68% and a cost of risk down by 30 basis points;

– 2021 dividend of 1.65 euros and equity program, i.e. a total distribution rate of 50%.

The negative effects of rising interest rates

Rising interest rates usually cause bank income to increase through loans. In Europe, according to a survey conducted by S&P of 85 banking institutions, the sector expects an average increase of 18% in the interest margin. However, this new inflationary environment also has undesirable effects, notably an increase in refinancing costs. It is also accompanied by the fear of a new recession, which would then affect all the bank’s activities, from loans to asset management, whose income is correlated to market valuations. Reassuring element: euro area banks are strong enough to cope with a deteriorating environment.

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