Société Générale Société anonyme ($GLE)

Good morning, everyone. Thank you for being here for our first fireside chat with Slawomir Krupa, CEO of Societe Generale. Slawomir, thank you for being with us.

Thank you. Thanks for having me.

I have a few questions. But first, I want to ask a question to the audience, actually, a polling question. So, what's most important for SocGen's share price performance over the coming 12 months? Is it the launch of a new buyback in the second half, beating on French retail, disposals, delivering the cost income below 60%, the key target for '26, the CMD or asset quality. A lot to choose from, let's say.

We don't have all of the above?

Of course, the CMD.

Yes. We're working on that. I don't know. No spoilers today, I think, but it depends on you.

I'll try. I'll try. We will get into some specific topics, but I need to start with a question on what's happening in the world. So Iran war pushing the oil price high, a lot of volatility, a lot of uncertainty. How is your business impacted by that?

So short term, the impact is not massive. Of course, because what happens is we have one set of things which we're certain of is that, it does impact quite profoundly, I think, sentiment across most asset classes one way or the other. And it obviously does impact the energy prices. What we're not certain of, and frankly, we don't know anything about that is how long the war lasts. And how these two first statements I made are going to evolve over time. If the war is short-lived, so to speak, which, I guess, is still a scenario from a geopolitical fiscal standpoint. Well, then I think that it's going to be a significant blip but not much more than that, right? If the war lasts long, you guys know that sentiment across both consumer and corporate and energy prices are about the most powerful drivers of macroeconomics, right? And from this perspective, the impact will be bigger, but it's going to happen later on. So that's how we think about this. We navigate the volatility. We navigate the shifts we're just talking about this, like almost every day, there's a shift in the very short-term sentiment. So we're navigating this. And from a strategic standpoint, it's back to a fundamental question of concentration risk. And in this particular case, our exposure to -- directly to Middle East is not significant. We're not disclosing the figure, but if you take some of the things we said about Middle East and Africa and some of the statements we made about the RWAs of our African subsidiaries. If you go through all these data, you'll discover that the exposure to Middle East is very small, a few billions actually, right? So concentration risk. And from this perspective, we feel protected as far as the area is concerned. And now concentration risk is one of the key, key features of risk management, in my view, has always been. And if I take most of the sectors that could be more heavily affected, none of them is higher than 1% of EAD, right? So we feel focused, concerned about the long-term impact on the macro of the world and some regions in particular, but also resilient.

Thank you. So if then I move on to a more strategic question. You've been CEO of SocGen for 3 years, and you started with different priorities, capital costs, you executed very quickly on the capital side, above 13%. What is your biggest strategic priority for 2026? So what's top of mind for you now aside from everything that's happening in the world?

Well, in the end, it is about increasing operating leverage for 2026, but frankly, as a long-term objective. And this is why we have the guidance that you know, which is growing revenues by 2% plus and reducing costs in absolute terms by 3%. And this continues to be the name of the game. It's somewhat obvious because it's both building intrinsic capacity to increase profitability as you grow, but also, obviously, to build in resilience as you decrease your cost base, right? And so more specifically, delivering on all the targets of the CMD is obviously #1 priority. And in the sense, of 9.6% ROTE for 2025, excluding the exceptional items that supported our performance, we feel comfortable that we will reach the upgraded target we have for the ROTE above 10%. And it's going to stem from continued growth across the businesses of a strong capital base, right? So sound growth and cost of risk under control. We maintain the guidance at 25 to 30 basis points. And support from lower cost of funding in French retail and let's say, the 1% to 2% underlying growth rate for most of the inventories, if you will, in the business. BoursoBank's objective to reach EUR 300 million is going to be supporting the top line in retail by roughly EUR 400 million and continued sound performance of our GBIS business, while Ayvens is going to basically finish the job and benefit from the synergies that we've been extracting from the deal. And so all these components will deliver the CMD objectives that we had set.

And if we talk about capital now, you have some excess capital. When you think about order of priorities for what to do with the excess capital, how do you think about distribution, organic growth or perhaps inorganic growth?

So as I said many times, our target ratio is 13%. So anything sustainably above is considered excess capital that needs a strategic decision to be made in terms of deployment. And so from a process standpoint, maybe first, we said at the last results publication that we would be addressing this topic of excess capital once a year at the Q2 release. The message we wanted to convey is, one, that no need to speculate every quarter about what's going to happen, right? That's helpful, I guess. Second message linked to the first one is that it's not a mechanical exercise, right? So we don't meet like every quarter and just see, okay, today, this is -- this is the ratio. Let's do something with excess capital. It's a strategic decision, the deployment of excess capital, and it needs some maturing, if you will. Right? And so, I mean, the easiest way we came up with this is this idea that by the middle of the year where you also have a good understanding of what's happening in a given year in most circumstances, it's a good moment to make this decision. And then it's a balance, theoretically the balance between the three opportunities that you mentioned, organic growth, inorganic and return to shareholders, but a very rational one, right? So growth on an organic basis, once you have the right capital base, which is the case today, is essential because it's our business, right? It's our business, it's our clients. And when there are sound growth opportunities within an environment in terms of risks that is, let's say, normal through the cycle environment. It's a very good way to deploy capital because it builds long-term sustainability of the firm. And on a marginal basis, it's obviously, especially in some of our businesses, a very high return actually on the invested capital above 20%. For instance, in the business like F&A, but frankly, in a lot of businesses, because the fixed cost nature of a lot of our businesses is helping with the operating leverage. In terms of the return to shareholders, below or at book, at tangible book, it is a very compelling opportunity to deploy capital with no execution risk, which we obviously take into account comparing it to the other opportunities. In terms of the inorganic, we're constantly looking at bolt-on acquisitions. The problem is if you want to stick to rigorous capital management and stewardship of capital, one, it needs to be meaningful from a strategic industrial perspective, so to speak. And it's not like this happens every day to come across these kinds of opportunities. And the second point is, obviously, the price. And today, the combination of these two requirements, so to speak, doesn't yield much good file, so to speak. So that's how we think about this. But again, within the framework of, we are in the business of being stewards of this capital. This is a rational, precise fact and data-driven exercise.

Perfect. So I want to touch upon another hot topic, AI, artificial intelligence, which has taken center stage in the market. Starting from software going to different sectors, how do you see -- so let's start with the broad question. How do you see the opportunities or the threats to your current business model coming from AI?

So well, first of all, a bit of, again, process answer before going to the substance. It is a critical topic for everybody, right? So I'm stating the obvious here. But this led us a couple of years ago already to do two main things. One, to create a separate company, which we call SocGen AI, it's working only for us, but where we wanted to locate, if you will, some specific expertise and the capacity to look at the bank from the outside in. Right? Without all the, let's say, let's call them conflicts of interest of legacy approaches versus new approaches, et cetera. That's one. And two, we have a pretty strong governance where the leadership team is involved, including myself on an operational basis to make sure that we focus the resources. It's always resources, it's always costs, et cetera, on the right topics, right? Because on AI, you can go very, very shallow and very, very wide, right? If you just opened, let's say, opened the box, right? So that's one. On substance, I think that today, the level of reliability of the tools that you can put out or into your processes, combined with the level of regulatory, supervisory really expectations, right, in terms of the quality and documentation of your tools when it touches something that has a regulatory content, which, as you know, in our case, is virtually anything we do that such as clients or risk management. Well, then the burden of proof, if you will, is so high today that we don't have in our industry, in my view, today, major applications at scale in production for major topics, right? We have tons of experimentation all over the bank. But I think this is something which is going to slow down real adoption, right, for a while. Now on the flip side, and this is why we've made the decisions we've made. It is going to be a massive factor of change in our industry. Because in the end, we are a huge digital factory, right, that's processing data all day long. And that has a number of advisory and sales teams around that product, so to speak. And so if you think about this like that, ultimately, the level of disruption and opportunity in terms of the cost base efficiency, client satisfaction is going to be massive, right? And this is how we think about it.

And when you say massive, have you tried to quantify it, the SocGen AI, helping you quantify?

Today, there's no -- today, there's -- it's too early, frankly, right? Take the number one, obviously, and you guys know that. The number one most advanced opportunity is today in coding and development, right, IT development. So normally and which we've done, right, we deployed the AI platforms to our entire development staff. You can expect easily cost efficiencies, 20% plus. I'm saying easily, right? I mean, push to the boundaries. And if you look through to improvements that are going to happen in the tools themselves. And recently, there was new releases of the coding platforms that brought yet another wave of massive improvements, you could go much higher. But then, remember also that there is a level of as always, right, of consumption of resources, computing and all kinds of other resources that are needed for AI to work, right? So I mean, 5 years from now in this space on balance, right, between the reduction in workforce that is going to be in clearly in 10%, 20% increments at least, but against the cost of operating it. I mean, it's going to be lower for sure and better quality, which is two great news. But is this going to be minus 80%? Frankly, I don't think so.

And if I stay on this topic, and I think about how AI impact the businesses that you lend to the corporate. How do you assess that business? Because the market has been testing, especially in the software space, but also beyond software, quite a significant challenge for some business models.

I mean, so this is bread and butter work for us, obviously. So we have included specific angles to analyze this, mostly two concepts. One is what we call substitution risk. I mean, it's our own concept, but we'd simply try to monitor how a particular business can simply disappear or have some of its features, some of its products, services disappear simply because the ultimate client can do it himself or herself with some new AI tools. And the other concept is what's the downside risk to the revenues because of the commoditization that could happen, right? So we added explicitly these two angles to our analytical framework, which forever had the technology disruption risk embedded in this, right? Because some of the big problems in credit in general, right, and 10 years ago, 5 years ago, 30 years ago, was a technology breakthrough in a particular value chain was always a risk which moved you from let's say, normal deterioration or upgrade in operating performance to, well, binary outcomes, right? So it's not different from this perspective. But then what we also have explicitly is an assessment of a company's ability to adapt. And I think this is extremely important, right? And in my humble view, in some of the headline sentiment trading about this topic like a month ago, I think, again, in my humble view, we were losing sight a little bit of the adaptation capability. And if you have an analogy with what happened 25 years ago with Internet and let's say the digitalization of a whole swath of the economy, well, I mean, yes, you had huge new players and some of them are very well-known magnificent companies today that emerged and became huge in the marketplace. Well, a lot of the incumbents also adapted well and just eventually reinforce their leadership. And so I think this is what's going to happen, right? I'm not sure that all of the legacy companies across all the sectors are going to be disrupted. I think some of them will be. But if they are able to adapt, they also have the means to invest today, and they are going to be the winners in the future. So the combination of the risk but adaptation capabilities is how we look at the world today.

Thank you. And I want to open it up to the audience in one moment, but I'll just ask one more. Connected again to the AI topic, but this time on private credit. So the market is worried about private credit, BDCs in particular. And I noticed in Q4 that within F&A, you said, "Oh, we grow fund financing." So, how do you think about this business? What risks do you see? Or how perhaps you think you're senior enough that you don't see many risks? I would love your thoughts on private credit.

So first, a few, again, like cornerstone comments. It's in our business in terms of risk management, the topic of concentration risk is key. I already talked about this earlier. It obviously applies very much to this business. So the first answer is fund financing, which, by the way, is not only private credit when I refer to this in our company, it's not only private credit, some other collateral as well. But it's roughly, it's a portion of our business with financial sponsors and our entire business with financial sponsors across all the asset classes, all the types of business, et cetera, in terms of risk is roughly EUR 20 billion, including securitization, right? And so that's the first point. And private credit is only a portion of that, a significant portion of that. But in the spirit of what I said about concentration, it's fairly balanced, right? So that's one. Second rule, you engage in businesses you know well. So we've been doing fund financing for 25, 30 years, right? And we've been doing private credit for 25, 30 years. So my first comment about what I -- my perception of the market is, is, there was a lot of latecomers to the party. And when you're a latecomer to a party that you don't understand well or you don't have a lot of expertise in, you are going to run into trouble, right? So that's my current view of what's going on. Going back to the features of the business, then what you want to do is to work with prime clients, right? Same thing. You want to engage in your businesses. And it's the same when you engage in, say, or in gas industry or tech industry overall or health care industry, whatever you want to work with the clients that are strong in their market, right? So it's another feature of our business. And this is also one of the reasons why, for instance, in the none of the instances that were in the press in the last few months. We had nothing to do with any of the topics that were in the press recently. More specifically on the structures you referred to this. Again, concentration risk. When you look through to the collateral in our business there, we're talking about several thousands of names, right? And this is another feature. You need to have diversification on a look-through basis at the collateral level, not only at the client level, but at the collateral level. I mean, it's an essential feature of this business, because this is what makes it resilient through the cycle. There will be cycles, right? There will be cycles in the essence of a bank's job, right, is to go through all kinds of credit cycles because we go through all kinds of macroeconomic cycles, but that diversification is absolutely key. And then, yes, the structure itself, this collateral for us is consistent the way we finance this with an investment-grade rating for almost the entire exposure we have to the sector. And so, when you combine all the features that I just referred to, today, we obviously monitor the markets like any other, and it's a market which has some signs of overheating for sure, and some signs of turning sentiment. But from an underlying perspective, we feel our portfolio is very strong.

Thank you. I'll pause here for a moment. I want to see if the room has questions. If not, I can happily continue. Okay? It's the first fireside chat, so let's -- I leave the room to warm up. And I'll then ask you about French retail. So if you think about 2026 and I think about the step-up in profitability, a good chunk comes from French retail, in particular, BoursoBank. So, and I know you mentioned it already earlier, EUR 300 million coming from BoursoBank. But how should we think about the delta year-on-year. And yes, if you have any comments on French Retail even more in general?

So the delta year-on-year, you should think about this as, I mean, a little less than EUR 400 million, because we clearly said that for the last 2.5 years, BoursoBank was actually profitable and able to deliver both that positive contribution, albeit small, while growing at a very high pace, plus 1.8 million, 1.9 million clients last year with that positive bottom line. But clearly, the vast majority it will come in 2026 in terms of the improvement from wherever they were to EUR 400 million of additional NBI. And it is going to be driven by two main factors in 2026, which are important actually long term, which is one, acquisition costs. Clearly, the acquisition costs in 2026 are going to be substantially trimmed down. And two, remember, though, as it is a very high-growth business, you have a phenomenon which is significant, especially at the size that BoursoBank is right now, which is the maturing of the historical vintages, right? Because obviously, when you acquire a client, the level of AUA, so both deposits, but also the savings that are basically in the life insurance wrapper in France grow. And so you start from, say, we have some rules, right? Just not to be completely stupid with the acquisition cost. So you do have to deposit some money if you want to get your little acquisition fee, so to speak. But it's small, right? It's a few hundred euros and the average AUA today is EUR 9,000. So you understand and say 60% of that on average are deposits, right? And so the maturity...

9,000 per customer?

Yes. And so this phenomenon of maturing of the vintages is obviously helping the top line as well. This allows to have some form of a balance, right? And this is going forward, also what we will be seeking, which is the combination of three statements, if I may say so. One, it is a growth asset. Right? And at EUR 10 million, say, we're at EUR 8.8 billion at the end of last year, but at EUR 10 million roughly clients in France, this is -- we're not done growing. Right? It would be a mistake strategically to, let's say, stop aggressive growth at EUR 10 million. This thing needs to have by some date. I can't tell you when, but it has to be more in the 20 million or 25 million clients range to be for us to fully take advantage of a remarkable opportunity that this thing is. Now from the size of where we are right now, this growth needs to be more contributive to the profitability of the bank. And so it's going to be a balance between the growth statement they made, but the optimization of the acquisition costs, that's the second statement. And third, the increased cross-selling and the increased value per client within the portfolio that we have. And this will deliver both growth, but with a certain minimum rate of return in terms of ROTE, that would be contributive to the group.

Yes, we published a note on Friday actually mapping the whole French Retail banks and BoursoBank featured as having grown significantly in terms of primary relationships also since '22. But having some room to go more on cross-selling. So that's definitely the opportunity.

Absolutely. And remember, right, we monitor cannibalization, obviously, very carefully. And it's been consistently around our level of market share. So every 1 million clients we acquire in the market, 100,000 comes from us, 900,000 come from our competition. We like that.

Great. I'll move on to GBIS now. We understand, so we had some market guidance from some of your peers, especially Americans. We understand the year has started well. But, in fact, the guidance for SocGen is more conservative on the base case having revenues down. So why would that be the case? Why shouldn't we just look at peers and extrapolate something similar for SocGen? That's on global markets. And then I have another question on F&A, but maybe we'll start there.

It's the idea that, well, first of all, you always need to keep in mind the fact that from a business mix, both geographies and products, we are slightly different from the average market. The quick one is much smaller prime brokerage, smaller cash equity even if we made good progress by acquiring Bernstein. And then in terms of the FIC side, fixed income side, much more geared towards rates and frankly, euro rates than the other components, even if we do most of the sub-asset classes. And in terms of geography, obviously, more focused on Europe, even if we have a very sound and growing business in America, it's obviously not the majority of our business. When you take this, in many instances, this is going to have us outperform typically '22, '23, '24, part of '24, it's going to have us slightly underperformed last year, right, because of the FIC and euro rates, in particular, being less of a contributor and so on and so forth. So that's one. Second thing, as I said very clearly, in terms of strategic intent, we are focused on profitability and stability more than on growth. And this is not just an empty statement, it actually shows in the figures, right? If you look at the last 5 years, this statement I made in 2021 when I took over CIB, which was stability and an ability to capture part of the growth opportunities that we see in the market. That's exactly what we're doing, and it obviously translates into a number of decisions, right, both from a commercial standpoint in terms of capital allocation, in terms of risk management and so on and so forth. And the idea that we can run a very stable business around, say, these [indiscernible] so currently, the guidance is above the top of the range at 5.7%. The idea that we can run this business in a very controlled way around that mark 5.7%, 5.5%, 6% last year, more or less with a 20% ROE and the right level of diversification and our clients happy. I mean, it's something which we want to do this way, right? And so you always have some of everything I just said, infusing, if you will, the way we extract the value that's available in any market.

Right.

Hope that's clear. If you have follow-ups, I can.

Well, some more guidance in the quarter will be welcome. But I know SocGen normally doesn't give it. So okay, F&A. F&A was very strong in Q4, and I think you have quite a differentiated business model there. So can you talk us through what is differentiated for SocGen and what is the outlook for this business? Because this is where, I guess, there is quite a bit of growth for you to capture.

So what's differentiating. I think -- and you know because you know as well that it's not recent, right? I mean, I remember when I did the Investor Day for CIB in '21, I think I came out with the guidance. I was already a little conservative on the edges of, I think, 3% or 4% CAGR. And I think for the first 18 months, whatever we printed in the teens, right, in terms of growth. And if you look at the track record in terms of risk management, it's very strong. So what's differentiating really is that most of these franchises, a little bit like the fund financing are decades old. Right? So what we do there are businesses where we've been around for clients, usually, right, for the ones who are privately owned, we work for the grandfather or the father, right, or the person running it today, right, so to speak, it's just an image right. But we've been around for a very long time, meaning we have access to a very granular, wide set of opportunities with hundreds of clients all over the world, right? And this makes it, I was going to say easy, nothing is easy in our business, right? But it makes it easier, let's say, that probably is one of the differentiating factor to capture growth of -- in terms of high quality, in terms of risk and in terms of pricing, wherever it is, so to speak, right? So this ability to be present in these situations all over the world for the most part is what drives this ability to grow sustainably while managing risks in a very good way. And these businesses are what are supporting clients in infrastructure, very broadly understood, right? So not only transport infrastructure, but all of the energy infrastructures obviously, all of the infrastructure is linked to renewables and all these investments all over the world and real estate, some leveraged finance, but very contained in size, and we're talking about EUR 5 billion, EUR 6 billion of exposure there and so on and so forth, right? And so the granularity of this business, and it's very, very long experience and long relationships that we have is what I think helps us perform there.

I think at some point, you made a comment that the demand for this business was so high that you were actually turning down some opportunities. Is that still the case? Is that the momentum, the need for investment is still there and you still keep looking on?

It's so strong. I mean, so going back to Iran, I mean, typically, if there is a more significant macro and long-lasting macro impact, it's going to weigh a little bit on this. But to your point, the need for some of these investments is so fundamental, right? It's so structural, but it's also protecting us from the space.

Especially in Europe, I would add.

Especially in Europe, of course. And yes, maybe one last comment. We have increased our focus in the last 2 years -- 2, 3 years on the OTD piece of this distribution. And so we increased growth origination, which obviously translates mechanically into an ability to do even more when the opportunity is there.

Clear. I'll try one last time to see if there are -- there is one, yes, questions. And if you raise your hand, I don't think they see you. Thank you.

Ann from [indiscernible] Going back to private credit and the collateral you mentioned, have you started to revalue part of the collateral? What kind of LTVs would you apply? And do you see any risk of a material repricing of some assets with what's going on with the BDCs, for example? And second question, it's on ratings. So you mentioned it's IG rating. But is that your own rating or external ratings? Because as well in the industry, you have late comers and you can question the methodology even of the old agencies like Moody's when you have the BDCs being rated BBB-, although you have different risk profile, you can question as well whether -- so could we feel like a rating cliff and some implication as well?

So starting with the rating, it's -- no, it's internal rating, right? I mean it's about ROA, again, back to my comment about us doing this for a few decades. So that's one thing. In terms of the valuation of the collateral, we don't see at this point. And again, going back to diversification, we also pay attention to sector diversification, right? So there's a very wide diversification from this perspective. And today, the level of repricing of that collateral is non-significant, right? So the impact we see on this portfolio is not significant, right? And the problem credits across thousands of names is marginal, marginal, right? So I think this is what's the most important, right? In the end, -- in the end, for the most part in the last, say, decade, right, this thing really took off. I mean, again, it's not a new business. It existed 20 years ago, right? But it took off in the last decade. For the most part, it was also consistent, especially in the U.S. with banks and mostly local ones, right, retrenching somewhat from lending structurally in the post-crisis moment and also seeing the opportunity from a capital management perspective, I guess, right, of this way of doing business. And -- but it was somewhat normal credit, right? So I mean, because there's this whole hype today about private credit. What I mean in the end, historically, in the last 10 years, this was normal credit granting done by people who are doing a good job, right? So as the market was overheating, let's say, in the last couple of years, you had late comers who started to do things that were less sensible. Let's put it this way. And to some extent, the market reacts reasonably quickly to these excesses and is, I think, sorting it out. Now from the BDC question perspective that you just had, I mean, in the end, could some rating action have an impact -- further impact on sentiment and maybe on clients on their clients' behavior, I mean, certainly, right? But again, that should not affect the -- in itself, the quality of the credit of the collateral, right? So again, there is going to be, let's say, a process of cleaning up the market, right? That's for sure. But today, I don't see -- I don't see this being a systemic problem in any way, shape or form.

Great. Slawomir, I want to close, like we started. The polling question said, CMD most important thing. You're not going to tell us the new ROTE target, but at least what axis or what themes should we expect?

I mean, I almost already said it, but I'll give it a different maybe spin is, when we started this journey, this particular journey, because the journey started 160 years ago, but this one, CMD in 2023, the diagnosis was that we needed to strengthen the foundations of the firm first, right, before going further in terms of growth or in terms of expansion or for that matter in terms of distribution. I remember some people were waiting for some big distribution announcement in 2023. I mean, how absurd would that have been if we went out with some distribution targets off a low capital base. Anyway, you understand my point. So now that we have this foundations capital, but also a better cost base, right, not perfect, but a better cost base. We can grow more meaningfully and in a controlled way, right? Of course, in terms of risk management, this is a feature of what we're doing, but also in terms of cost, basically, we're better at spending now that we've made significant efforts in terms of efficiency. So the future is increasing operating leverage by being very focused on costs because we have room to do better and while taking advantage of a better cost base and a strong capital base to grow.

Great. Thank you very much.

Thank you. Thank you very much.