Société Générale Société anonyme (GLE) Earnings Call Transcript & Summary

Thank you for participating for this premium review conference. So we have the pleasure to host Frederic Oudea, CEO of Société Générale. If I may, I would suggest to start with a quick presentation of the performance of the first 9 months of the year. And then maybe we can keep a 20- to 25-minute time for a Q&A session, which will not be recorded, for your information. Thank you very much. Frederic, the floor is yours.

Thank you very much, Cedric. Good afternoon to everyone. I'm delighted to be able to present during this annual conference organized by our CIB division. Again, a virtual presentation we are getting used to it, I guess. I will go through beyond the results of strategic initiatives and our strategic road map. But effectively, I just would like to remind you some key figures for the first 9 months of this year, which is obviously a very strong year for us. On the back, of course, of good economic environment, a strong rebound despite as we can see currently still some sanitary uncertainties. And may I say also perhaps something of interest. On the back also of an environment where we have a step-by-step more clarity, you know the European Commission made its proposal for the implementation of the so-called Basel IV agreement. And as you might know, a proposition which is taking into account the specificity of the financing of European economy by banks, predominantly by banks. And also the need to have a level playing field compared with other banking systems. So I'd be happy to answer questions on this topic if you have. But if you're aware, as a French bank is not necessarily happy with all the package. We saw some progress in the understanding of what is at stake. Now to come to the figures, let me just highlight, again, the strong performance in terms of gross operating income, which is a mix of a very strong rebound of our revenues, in particular, of course, in the capital market, but not just in the capital markets, all the businesses are actually contributing and also the maintenance of a strong cost discipline. The second element is, of course, a low cost of risk at 16 basis points, which is the result, I will say, of course, of a curtail of government support schemes, but we see low cost of risk, including in geographies where we did not see any significant support from governments, I have in mind, in particular, Africa or even Russia. But also, I think, a sound credit origination throughout the past years and of course, the very conservative provisioning that we did in 2020. All in all, we have a EUR 4 billion group net income for the first 9 months of 2021 and a double-digit return on tangible equity, which is, of course, very positive. If I look now at the capital, we've been able to basically maintain stable the core Tier 1 ratio, 12 -- 13.4%, sorry, it means headroom of 400 basis points, more than 400 basis points above our MDA so-called MDA level. And despite the fact that we had, of course, to absorb some regulatory headwinds as well, of course, the financing of the current share buyback of EUR 470 million is -- execution is well advanced. We have executed 60% so far of this share buyback. And let me just remind you that we have provisioned EUR 2.03 per share for the first 9 months of 2021. Now let's turn to more strategic initiatives. I would say beyond the financial results, this year, I think it's very important when I look at the number of different initiatives announced and currently implement. Clearly, probably the main important area is French retail. And here, it's really 2 projects. As you know, the implementation of a merger, domestic consolidation between our 2 networks we have given much more details on the setup of this new bank just a few weeks ago. And we are going to be in the process of execution in 2022, in particular, regarding the preparation of the IT migration. I will come back to that in a few minutes. The second element is the development of Boursorama, which is an undisputed leader in online banking in France. Beyond this, we announced, as you know, a series of development in international retail. With banks which are all of them taking advantage of the penetration of digital channels. In the mono geographies, it is in Russia, actually that we have seen the biggest acceleration in the usage of digital channels by our clients. But it's also true for ALD. I will come back to that in this new mobility market. And then on the GBIS side, this wholesale activity which is a world in my view of risk sharing, definitely also very strong progress in the implementation of the strategy, which has maintained the scope of businesses but with a target, which is to reduce the standard deviation of our performance in really distressed situation, and this has been executed, remarked. Let me just answer again a little bit more in the detail. So for the French retail, as you know, this new bank, we have 10 million clients. It has as an objective to improve the quality of service delivered and to be in the top 3 in this market in terms of client segmentation. It will also to be a much more efficient bank. We are going to benefit for -- from EUR 450 million of synergies with the optimization of the network with reorganization of the back offices and of course, the fact that we will have just 1 IT system instead of 2. And it is also a bank which we want to make a difference in terms of sustainability through a different offering. One is the credit or, for example, the investment solutions in our new open architecture, which is moving forward very well. As you can see on the slide, the idea is really now that we've designed more in detail on the business model is to prepare the implementation. The legal merger should take roughly 1 year for the approval by the supervisory authorities. We are going to prepare in 2022 the IT liberation, which will take something like 6 months in 2023 at 9 regional banks that we have to migrate, and it will take some time and given this number of banks. And then from, I would say, the second half of 2023 onwards, it will be, of course, the implementation of this new bank. Let me highlight, of course, the performance of Boursorama, I see more and more interest in Boursorama. Boursorama it's -- let me just remind you, more than a 7-year growth story; started from basically nothing into a bank now with 3.1 million clients. A position which is very clear, the cheapest bank in France and the #1 online bank in France, with a very high level of satisfaction by its clients. Its clients which are -- who are autonomous and precisely are able to deal with digital channels for all their banking services. It's simple. It's a very disciplined one, very comprehensive when you look at the range of products, and you have here on the slide a few figures, it's big. It is becoming a big bank. And here, when I say this, when I look at the size of the balance sheet versus many new banks. Here, we talk about the EUR 35 billion of deposits and financial savings and EUR 13 billion of loans is real and significant figures. The client acquisition is going very well with a model which is, of course, very efficient. We just need to add dozen staff to concur 500,000 new clients. It's very early at minimum. And again, it's a bank with full compliance and risk standards. The ones of Société Générale, of course, benefiting also to a certain extent that it is a streamlined, very disciplined model. But again, with full security, which I think going forward will be an advantage. Let me say a few words on international retail. We are, as you know, in geographies, which overall have better environment than Eurozone, at least in terms of interest rates. We expect pretty solid progressive rebound of the economies. We saw already the beginning of an interest rate normalization in most countries. Romania, Czech Republic and Russia, as you can see. And of course, with banks which for some of them have an excess of deposits versus stores, it should translate step by step into the P&L. The commercial dynamics are remaining good. You see the figures here, a little bit less in Africa where, again, the growth has not yet rebounded. But overall, we have positive figures. And across the board, it's a lot around digitalization. Of course, with Africa being in a different situation where you don't have to adjust legacy retail networks with branches. They have skipped that phase, but in Czech Republic, in Romania, in Russia, we are refocusing the networks and developing further the digital channels. We see similar patterns, I would say, from clients in those different geographies. If I look at ALD, well, ALD, as you know, is one of the jewels of the Société Générale. Same thing, long-term growth story. Year after year, it has delivered. Well, needless to say this year, it's, I would say, a phenomenal performance because on top of the structural growth, it's fair to say we are benefiting from the extraordinary situation of the car market with a shortage of new cars and of course, prices of used cars, which have gone up. And as you know, well, we can -- we resell many cars a year, and we are benefiting from that. That will not last forever. Nevertheless, that's very nice. And beyond this, as you know, it's a very innovative company, which will benefit from this growth market, and which is able to innovate also by acquiring start-ups and integrating these start-ups. You have here some of these start-ups. We've also the vision that we are not just around the car usage, but building beyond more global mobility solutions with partners. And very interestingly, we see also a good switch on your car fleet towards electrical cars. If I may, for companies who want to show their commitment to ESG, to a certain extent, changing the car fleet, switching to electrical vehicles is a relatively quick, relatively easy way to show their commitment, including to the staff. And I think we see that. And as you can see on the slide, 30% of the new cars delivered will be effectively electric cars by 2025. So we are really accompanying the transition. If I move now to GBIS, well, clearly, we had, as you know, a very strong performances. It's true for capital markets where we executed perfectly well, if I may say, the strategic road map of last year regarding investment solutions. Job is done. And actually, the activities, which suffered in the first half of last year will record the best year ever for their -- these activities. That shows beyond this capacity to change the structure of the portfolio, also the quality of the client franchise. But beyond this, I must say, I'm very happy also with the Financing & Advisory revenues. On the back of, of course, a strong corporate activity in terms of M&A, but beyond, of course, the ESG trend, and we are able to generate additional revenues from advisory mandates or of course, the financing issuance. And let me say, we try to be a pioneer -- on all the rating, the nonfinancial extra financial rating agencies have been upgrading Société Générale across all the parameters of ESG policy, and in particular, regarding environment. We are a leader in the financing of renewables. But also we try to be pioneer regarding new technology needs, which will be needed to ensure this transition and trying to limit the increase of temperature. I'd like to mention, in particular, regarding hydrogen, where we were the bank selected by Total, Air Liquide and VINCI in the structuring of the first fund dedicated to financing equity stakes in hydrogen projects. So I think, again, here, we are -- we know that we might not benefit always from so good and so strong market conditions, in particular, on the equity market, but nevertheless, we were very happy to demonstrate the quality of the franchise. And as I said, we are now much better positioned in case of, again, further turbulences in the market because we have reduced our stress test very significantly on the investment solution products. Again, when I look long term, again, beyond the next few quarters and the next strategic road map, we have, I think, 3 major angles for action, for transformation, the client-centricity more than ever, focusing on the client needs, the evolution of their behaviors, the evolutions of their expectations. It's very important to keep close. And of course, be able to accompany our own clients in their own transformation trajectory. ESG is going to be a revolution for the banking sector and for us and a lot of hard work too, of course, beyond the commitments that we have already taken, very clear commitments on the fossil energy, shift the portfolio of credits, shift, again, the product range that we propose to our clients in terms of investment solutions towards really clients, activities, products, which are in line with alternatives limiting the increase of temperature. And of course, efficiency remains a key objective. We have to further lower the breakeven point of our activities. We have different plans that we are currently implemented, but we expect in the next 2, 3 years to have reduced structurally the breakeven to improve structurally also the profitability of our group. Let me just add a final word on the value creation for our shareholders. Clearly, as you see on the figures, the very good results of 2021 and I would say, much beyond the comparison with 2020, which was, of course, an exceptional year. But with 2019, where you see the progress in terms of earnings per share, which is pretty spectacular, in terms also of profitability, knowing that we have more and more equity capital requirements based on, again, the regulatory framework and, of course, of net asset value per share. So the idea is to brochure step by step the re-rating of the share price, thanks to sustainable delivery of results. We want to maintain our payout policy, the distribution to shareholders, 50% allocated to the businesses, organic growth. We have a model, which is more geared towards organic growth than many European banks. I would have a very different strategic position if we were just a retail bank in Eurozone, but we have many other businesses. We have different geographies, which means more growth. Of course, considering a limited number of acquisitions, which can make sense and be part of enhancing the business model. As you know, and it's public, we are currently in discussion with the shareholders of this plan to combine ALD and this plan and create the undisputable leader in the mobility sector. And then, of course, the other 50% of the capital generated will be distributed to our shareholders with a mix of dividend in cash and share buyback and from that perspective, certainly myself, but the Board, we have no taboos, and we want to leverage on our growth levers to distribute our capital. That's what I wanted to say in a nutshell, but I'm now ready to take your questions.