Société Générale Société anonyme ($GLE)

Okay. Good morning, everybody. It's my pleasure to be joined here on stage by Leopoldo Alvear, CFO of Societe Generale and member of the Group Executive Committee. Leo joined SocGen in January last year, having previously been, as many of you will know, CFO of Sabadell. Leo, thank you for once again joining us here at the conference.

No, thank you very much.

Today, we have 35 minutes. That will include some time for audience Q&A towards the end. We've got a few questions to run through to begin with. I know sort of we're all -- or you're hosting a highly anticipated Capital Markets Day in September. So perhaps no new medium-term targets today. We'll have to wait until September for those. And the session is being webcast. So a warm welcome to everybody who's also joining us online.

It's been a volatile backdrop, I guess, for the first 6 months of this year. And given everything that's been happening on the macro front, how about we begin with thinking about the overview of how the business is currently performing and how you managed to deal with some of the various ebbs and flows of recent volatility.

Well, thank you very much, Chris. So I mean, it's been a volatile 6 months because actually, when you look at the markets, most of the asset classes have gone back to pre-crisis mode, if you wish, or pre-crisis valuation. Volatility has gone down a lot. I mean it went up, but now it's actually fairly low. And the only -- well, the only between brackets, I think that's off right now, it's energy prices, which are still at $90 to $100. And this is the current situation. And of course, we need to wait and see what happens. So my point being that it's still a little bit early to see direct impacts nor on asset quality nor on the businesses. When we looked at asset quality in Q1, it was following the same trend that we were seeing in the previous years. So basically, NPLs were stable, actually a little bit down. We had a pretty good cost of risk of 25 basis points, so in the lower part of the range of 25 to 30 that we were aiming for. And actually, that already included an EUR 80 million overlay that we did in the quarter. So it's still early to see those kind of impacts. We would need sustained very high energy prices, which could have an impact in inflation, which could have an impact in supply chain, which could have an impact in monetary policy, GDP, unemployment, real estate to start to see a trend forming in terms of asset quality, especially on the individual side of things. Now you can always have single names or whatever, but we haven't had any of those either. And I'm not aware that there have been many in any case. So from an asset quality perspective, we're still more or less in the same situation as we were. Again, very early to say because it takes time to generate. From a business standpoint, if I look at the 3 pillars. So again, nothing to report on RPBI. Actually, we did a pretty good quarter. It was 9% up versus the same period in 2025, driven by a good evolution of NII, which is more or less what we expected and guided and a very good evolution or good evolution of fees and with a very good contribution from Bourso for this quarter. Then if I look at MIBS, basically, the revenues were down on reported, but basically because of disposals of last year. This is where we made the biggest disposals in '25. So if we adjust same perimeter and exchange rate, revenues were up like 3%. So again, nothing that was seen in terms of disruption. And finally, GBIS, which is the one that's more closer to the markets and to short-term evolutions. Here, what we saw is on the market side of things, revenues were down, but at constant FX, they were actually a little bit up. So basically, FX was working on the contrary for us because of Rates Europe. And then within markets, we have equities, which actually did a record quarter. So it was reasonably good. And then FIC was less conducive. But because of our geographical mix because we're very much hedged to Rates Europe because we don't have commodities and so on and so forth. And then the impact of there, the conditions were less conducive for certain. And then on the CIB part of the business, again, yes, uncertainty is not good for this part of the business. So I think we saw a more muted scenario for I don't know, M&A, ECM and so on and so forth.

So maybe if we pivot to cost, one thing that really stood out to me in the Q1 print was the breadth of the cost outperformance across the group. It was more or less better than expected in every business. How consistent is the cost opportunity that you're seeing across the divisions and the varying approaches that each of those individual business is taking in order to improve efficiency.

So I think this has been a core part of our strategic plan since 2023. So if you recall there, we had basically 3 targets very, very simplistically. The first one was to streamline the company, so to retain only the core businesses. We are 95% there. Second was increasing our CET1 towards above 13%. We did it last year. We already did some extraordinary return to shareholders. So I think that's also ticked. The third one was operational leverage because that's the real underlying issue of the bank. Back in '23, we had a cost to income of -- in the mid-70s space. We are aiming now to be below 60% for this year. We think we're well on track to do so. So that was our key focus and criteria. And within the cost to income because it's obviously the cost side of things. So I think certainly, we're doing -- we've been doing a lot of efforts on this front in the last 3 years. We're obviously doing this year. What are we doing here is there's a variety of situations and levers. Basically, the IT front is very important, both on the external expense and on the internal expense. On the external, we have reduced very, very significantly the amount of providers we work with from the many hundreds to the mid-single digit. And of course, this is something that is already bearing results, but it will be so during the course of the coming years because most of this comes through amortization and therefore, it's not something that you see in 2 quarters, but it's more something that you see over the course of many years. And on the internal side of things, we're also trying to reduce the complexity of the IT landscape. So we have plans to basically decromize thousands of apps. Again, this is that's not going to be seen only in 2 quarters, but it's more of a long-term project, which will envisage 3, 4 years to be completed, and we will see returns out of that over the course of this period. And also, I think perhaps this is one of the most -- or the clear examples of the usage of AI today. We're improving the productivity of the coding of the site. So that's very clear. On the IT, and we are doing -- we did it last year. We're doing it this year. We're going to see returns coming in the coming years. We're also -- as you know, when we disclosed our CMD and the target for a 60% cost to income in '23, we said we needed EUR 1 billion, to invest EUR 1 billion cost to achieve that cost to income. The vast majority of that has been spent through the course of mostly '24 and also '25. So there's only a little bit left. We booked this in the OpEx line. So again, we're going to have a step down here because the amount of CTA that we're going to book this year, just like we saw, I think, in Q1, we had a difference of EUR 60 million coming from this, right? So we're going to see this steadily through the quarters. We're also working on the reduction of the structure of the group. So when you look at our URD back in 2023, we were like 126,000 employees. Now we're 109,000. We already disclosed that we are reducing our FTEs in France by 1,800 people in the coming 2 years. So this is a constant review of the structure that we have. And then we launched a program last year, which again is going to last for a number of years, very, very, very detailed initiatives. We have over 4,000 initiatives, some of them are very small, some bigger, which are to be executed over the course of the coming years. So all of this to say that the focus of the management on the operational leverage obviously is not finished this year, and we'll go forward because 60% cost to income is a target that we were aiming to achieve for this year, but it's a target that we need to keep on working on, on the coming years. And of course, cost to income. So it's a matter of income, but it's a matter of cost also. If we look at the cost structure stand-alone, I mean there's this so many ways that you can look at this in order to compare yourself with the world. You can look at costs on total assets, but probably you will see it will not be so comparable depending on the peer you compare to. And I like a little bit more cost. It's not perfect, but a little bit more cost on RWAs. And when I look at our cost base here, we're still at 4.4% of RWAs, right? And some of the best peers in the industry are probably more in the 3.5% space, right? So certainly, we need to keep on focusing and working on this regard for the coming years and will be one of the pillars certainly of the CMD in September.

Very clear. You referenced earlier the decision to get to 13% CET1. You've been there for some time as of last year. How comfortable are you that, that remains the right level for the group? And I guess, what are the trade-offs? What are the pros and cons of operating at that level versus a higher level or a lower level.

That's a good question, theoretical one, but a good one. So I think we decided to increase our CET1 back in 2023. We were operating with 12%, and we wanted to raise it to 13% basically to discourage any potential risk of dilution of the shares. So it was a management -- completely a management decision. Since then, we were aiming to achieve this target by the end of this year. We were able to achieve it way before, so basically probably almost 2 years in advance because of 2 reasons. So we were able to execute most of the divestment program earlier and probably in the higher range of the expectations that we had. And second, because we were very disciplined in capital allocation, also because we were transforming many of our businesses. So we were above the 13% threshold last year, and we were very clear in this regard. The 13% already includes a management buffer. So we don't want to build a buffer on top of the buffer. So basically, everything in excess of 13%. We believe this is capital that needs to be used either organically or inorganically or with return to shareholders who are the owners of the capital at the end of the day. We are just the stewardships of the capital. I think we proved this last year, we already executed 2 share buybacks for a total of EUR 2 billion in 2025 because the Board decided that the best usage for that capital was to be returned to the capital. We didn't find another usage of capital, which could equal or surpass the benefit for shareholders of giving it back. Now this year, the only thing that we disclosed in Q4 is that this is not something that we're going to do on an accounting basis on a quarterly basis. So we think this is strategic, the usage of excess capital. So we will be coming back to the market with the Board's decision in Q2. But the rationale has not changed. So basically, in order to see where we deploy the excess capital, we need to see whether we have a better return, an accretive better return organically, which, of course, there are possibilities to do so, but we don't want to grow organically by changing our risk profile. So that's very important. And that, for example, this year, we're aiming to increase RWAs by 2%, and we're a large bank, so we could do -- we could grow faster, but it probably would take us to the wrong situation. We can use the capital in inorganic approach if we find something that's very clear strategically and financially. And if not, the capital will be returned to shareholders. As per the level itself is 13% the right number. So I think -- I mean, it's true. It's absolutely true that if I look back at 2023 and you look at today, the group is quite different. So the return on tangible equity has basically doubled since 2023. So it's a different -- and of course, the pre-provision profit, which has increased by 50%. So basically, we have now -- we're now in a different situation. We have much more capital. We have a more robust balance sheet. We have a more robust P&L, which is generating more profits every year. So that could take care of unexpected losses down the road. But we also need to look at where the market is. And since we went for 13%, I think the overall of the market has gone higher, I mean, higher than where it was. So some of our peers, for example, have moved to 13% just recently. So I think we need to take into the context the overall framework. In our side, yes, our situation has improved since 2023. The overall, the market has moved, and we need to take that into account. So for the time being, I think we're comfortable with the 13%.

Good. And then you mentioned actually in earlier comments, the performance in the businesses in the first quarter, French retail, in particular, NII was up double digit. That was funding costs and back book repricing. But how much of this NII momentum that you're seeing in the French business today is structural versus this kind of timing-related tailwinds? And should we expect the sort of double-digit growth rates that we're seeing in French retail NII to normalize as we move through the rest of 2026.

So indeed, we have had a good quarter. Our NII went up more or -- if I exclude PEL/CEL which is a very technical issue, which is a product that needs to be repriced every Q1. So it's a little bit not recurrent. It went up 10% basically year-on-year. And the moving parts behind these are basically the ones that we've been discussing with the market. So again, if we simplify, it's basically cost of funding, and that's moving by the mix of term and site, which I think has stabilized over the last 3 quarters or so, plus the cost of funding, which obviously is coming down as we reprice the deposits that we had in the past. So that's the major lever, if you wish. Second one, it's the repricing of the long-term assets. So that's much -- it's slower. It's good, but it's lower. So we're pricing the mortgages, but that takes 8, 9 years. And then the third lever would be the volumes. The volumes are relatively muted. So this all gets into places where we can still sustain that our view here is that our NII should be progressing not only in the coming quarters, but all things being equal, of course, if things change, it will be a different circumstance. But over the course of the coming years because these levers should be working in the right direction over the course of the coming years. We've guided for a muted increase of our NII going forward. And I think on this regard, at this point, nothing has changed. So that we stick to that kind of follow-up.

And on BoursoBank, clearly saw an improvement in profitability in the first quarter. How should we think about the balance there between the search for growth and the search for profitability. What's the right sort of steady state in terms of client acquisition expense and the returns profile for BoursoBank within the broader division?

So BoursoBank, I think we need to look at it within the scope of the CMD. So basically, out of the CMD, we had targets for the group and then we have targets for specific business units, right? And in the case of BoursoBank, we had 2 targets. The first one was to achieve 8 million customers, and we achieved that basically last year, so ahead of schedule again. The second one was to deliver a net income of EUR 300 million in 2026. So we debated internally significantly whether we wanted to apply or reach both targets or keep on growing the assets because we believe that the asset is a growth asset. I mean, for certain, right? This is, in my view, it's a very, very good asset that the group has for a number of reasons. I think we just showed in Q1 that it can be very profitable. We made EUR 92 million in the quarter with RONE which is in the mid-60s space, which is extremely high. Why? Two reasons basically. Again, simplifying. The first one is that we have 9 million customers, almost 9 million customers and 1,100 employees. So basically, have joking that's what AI -- we could dream with AI. It's BoursoBank basically today. The second one is because of the profile of the customers that we have. We are more leveraged on liabilities than assets, right? So basically, we are consuming less RWAs. So it's a very, very profitable asset, which, in my opinion, has the potential to disrupt the French retail environment because of these very small, very contained cost base because it's important to mention that we've doubled the customers in 4 years, but the workforce has gone from 950 people to 1,100 people. So basically, the operational leverage is huge on that regard. So given that we understand that this is a growth asset and we need to keep on managing it that way, we came to the conclusion that it's very important to show the market the commitment of the management with all the targets that we disclosed. So we want to comply and achieve all of the targets that we were aiming to achieve back in 2023, and one of them is Bourso. So for this year, we've shown the profitability, and that comes against a smaller or lower growth of clients, which I think also gives the management an opportunity this year to focus on the profitability of the clients as the vintages roll over because basically, the evolution of profits of BoursoBank will be driven by the NII evolution, and that's the cross-selling of products over the course of vintages for those clients and also on the fee line. So I think that's one opportunity instead of solely focusing or mostly focusing on the growth, focusing also on the profitability of the client. And also, we have the opportunity to study other forms of growing our cost base. But then again, for the future, I think the asset is very good for -- if I were to simplify, what do you need for retail, oversimplifying. So you need to be able to provide all the products that clients need. Bourso is offering right now with 40, 50 products. So that would entail probably 99% of normal clients need. The second thing you need to do is to be able to offer those products competitively. So basically at good prices, again, 1,100 employees, so we can be as competitive as anyone else or more. You need to have a very good relationship with your clients. So basically to serve him well, #1 NPS over the last few years. And then you need a fourth thing, which is the client demand, right? So you may have the best product, you may have the best mortgage, but if your client is a 25-year older, you need to keep him engaged or her until have the need for this kind of mortgage. So basically, the growth of revenues cannot be done in retail in 2 quarters. It needs years of engaging because some products cannot be sold even if you are very good and you have the best product, you need the client needs. So our duty is to keep those clients engaged. And for me, a very good proof of that is the churn rate. So basically, we've been growing clients in the high-teens space over the last -- sustainably over the last few years. and the churn rate, the amount of clients that we lose every year, it's at 4%. So this means that we are engaging those clients in -- and BoursoBank is becoming more and more important for them. So for all of these reasons, we are firm believers that this is a growth asset. And certainly, we will keep on growing the asset going forward. Now it will be a different road. So we will sustain a certain level of profitability, which is accretive to the group, and we will reinvest the rest of that profitability to grow the asset further. And of course, in September, I'm sure we will spend some time explaining the next leg of BoursoBank because I think it's a very important one for the group.

Well, I like that sound by the 60% RONE for AI-powered cost liability income business is quite compelling.

It isn't the headline I was looking for, but...

So markets, you mentioned earlier, there was a big disconnect in the first quarter between the performance in equities, which was actually very strong versus your performance in FIC, which is a little bit weaker. How much of that performance is purely cyclical, some of the dynamics you mentioned given the euro rates heavy mix of the business. Or on the other hand, do you see there being a need to rebalance the business towards a sort of broader set of revenue streams in order to increase resilience if we continue to move through these kind of consistent episodes of volatility.

So again, I mean, I think the strategy that we have with the markets, I think, changed back in 2021. Slawomir was the head of GBIS at the time. And we decided to reduce our exposure to the most volatile products, right? So it was a conscious decision by the Board and by the management to reduce the exposure to, for example, very dividend-driven products, which were more volatile and so on and so forth. And we had the bad experience back in 2020 when we had the ban on dividends in Europe. So as a matter of fact, since then, we've reduced the use of RWAs by 20% and the use of the stress test by 60%, 70%. So quite significantly. So basically, we wanted to make a business which was robust, less volatile and where we could secure 2 things. On the one hand, the bottom part of the range. On the second hand, the profitability of the business, right? And of course, we are aware that we're leaving money on the table because we have exited some of the businesses or some of the products that were more volatile and therefore, riskier and where you can have higher profits in the good part of the cycle, but probably you're going to have some more losses on the wrong side of the cycle, right? Since then, and I think this is very important to frame the overall of the business, and then I'll get into the details of why we're different, right? But since then, I think in 2020 or 2021, the middle -- we always give a range. This is one of the guidances that we give for the group, a range of the revenue that we're expecting from the markets business. Back in 2020, 2021, the middle of the range was EUR 4.5 billion. This year, it's EUR 5.1 billion to 5.7 billion. And we have been for -- this will be the fifth year in a row, having revenues above EUR 5 billion, right? So basically, we've tried to build up the bottom part of the range while not increasing the range going forward. And I think this is going to be the strategy going forward. So I would not expect a huge range out of our CMD, right? And on top of that, we are very much focused on the profitability of the business. So on the margins. And when I look at the RWA or the NBI per RWA, we compare fairly well in most of all of our products with the market. And then we have different mixes, and I'll get to that in a minute. And also, we've been working pretty hard on the cost base. So the RONE for this business in Q1 was 25%, close to 25%. The RONE over the last 5 years has never been below 15%. So basically, we are trying to improve the RONE as we improve the bottom part of that range. So that's the overall strategy on the business, profitability and less volatile. Now if we get into the details of equities and FIC, equities had a good quarter. It was a record quarter for us actually. It was -- the revenues were up 5% or 10% with constant FX, if you wish. So it was good. We have a less conducive quarter in FIC, where FIC was down 18% or 15% at constant FX. Why is this evolution? Basically, there's 2 reasons. The first one is geographically. So we have 25%, 30% of our revenues are in the U.S., which obviously had a much more conducive market conditions, and the rest are basically or mostly in Europe. So that's a big difference. If I look at the markets business in the U.S. or a number in Q1, in dollars, we were 24% up. So that compares fairly well to -- or in line or well with other peers. But of course, in Europe, things were more muted. We have done -- and so that's geographically. And then by products, in equities, we have less exposure to prime brokerage or cash equities, which are activities that we're trying to grow, and that's why we had a joint venture with Bernstein, and we hope that this -- sorry, allows us to grow in this business going forward. But again, I wouldn't expect the hockey stick. So we want to grow it steadily. And then on the fixed side of things, we are very much hedged to Rates Europe, which has not been conducive over the course of the coming -- of the last 2 quarters. And we have a big, big part of our mix. It's driven by that part of the business. And also when comparing to other peers, it's fair to take into account that we exited the commodities business back in 2019. So when I look at Q1, for example, some U.S. peers had a good quarter in FIC, but it was driven by the commodities business, which we didn't have. So it's basically geography and business and product line.

And maybe pivoting to Ayvens. What are the latest views or walk us through your latest views on Ayvens, particularly in the context of the normalization in used car prices that we're seeing, but also it was a choppy year in terms of performance in 2025.

Sure. So again, here, I'll go back to our targets for CMD. So basically, for Ayvens, we had, again, if I simplify, 2 targets for this year to be able to reach a return on tangible equity between 13% and 15%. We were at 13.9% in Q1. So basically, we're there. And second one was to have cost to income without the used car sales because that brings a lot of volatility in the 52% space. And I think we were at 54% in Q1, okay? So for this year, the company is completely focused on basically the last part of the integration of LeasePlan and ALD, which -- the migration of the 2, 3 last platforms that we have this year. Some of them have already occurred, have already happened and delivering on the financial targets. So that's basically what we're doing for this year. Now when I look at the evolution of the company, ROTE is there, cost to income is getting there. In 2024, we made a decision to pull the brakes on the production. That's probably the one thing that we're -- so one of the targets that we were aiming for in '23 that we're not going to do. So we're going to deliver on the financials, but in a different way. And we pulled the brakes on the production for 2 reasons. The first one is that the margins were very, very, very constrained. And we thought we had to protect margins, and therefore, we didn't have to grow so much. Second one and the biggest one probably was the uncertainty on the residual value of EVs. Now in hindsight, I was not here, so I can look -- it's very easy always to look at the past. I think it was -- they were the right decisions. So on the one hand, our margins are still growing. In Q1, I think we had -- the margins of new cars were -- I think it was 587, if I recall correctly, so around 25 basis points higher than Q1 '25, so in the right direction. And that's not happening everywhere in the sector. So I think it was the right decision. And then the uncertainty with regards to the new EVs that you're selling, I think it's coming down. Now of course, the used car sales are coming down significantly because they were -- they started at a place where it was not natural. So the used car sales for average previous to COVID, where this disruption happened, was more in the EUR 100 space, right? Now in COVID, the industry got to EUR 3,000. So since then, because of the supply chain and so on and so forth. So since then, we've seen a natural decrease or normalization of those margins. So in Q1, I think the average used car sale was around EUR 470 per car, which is within the range that we guided the market with, which was to be between EUR 600 and EUR 200 for the year. But it's the normal normalization of the evolution of this part of the business. So I think things are going more or less as expected. As I said, this year, very focused on finishing the integrations and delivering on the financial targets. From next year onwards, I think this is an asset which is going to be in the mid-teens space in terms of return on tangible equity. So we're probably the biggest player in their space. And the uncertainty with regards to new EVs, which, of course, the demand is only going up and therefore has an impact on the mix. Well, I think it's coming down. Is it finished? Probably not yet, but I think we're getting closer to a place where we can sort to print those kind of vehicles without expecting a loss down the road. And therefore, I'm not sure if it's going to be in '27, we will see it out of the CMD, but this is an asset where, at least from a financial standpoint, provided that we are comfortable with the residual value risk, right? I would put capital to work because it will be accretive to the group.

Very clear. My last question before opening up for audience Q&A. The international retail businesses in Central and Eastern Europe, they're sort of a little bit hidden gems within SocGen. What do those businesses bring to the group? And where do you find synergies between those businesses and the operations in the rest of the group?

Sure. So I think we have 2 retail franchises in the Czech Republic, KB and in Romania, BRD. Both of them are -- I mean, they're core to the group for a number of reasons. We like the countries. We like the geographies. They're growing and they're linked to the EU, either because of flows, either because of the Czech Republic being very close to the German economy. The economies are growing. The demand for loans are growing. Both are doing like 7% to 10% increase in loans, which is natural increase of demand coming from the economy. They are sizable players. So basically, they're #3, #5 in their countries. They are profitable. So basically, the ROTEs in these businesses are in the high teens space, high teens to 20%. They have quite a lot of capital, again, in the high teens to 20%. Their asset quality is controlled. They bring a very, very atomized deposit base to the group. And so basically, we are comfortable with both franchises and then they have synergies with the group, right? And what kind of synergies do they have with the group? So basically, on the revenue side of things. So we -- simplistically, we sell our products to their clients, so basically CIB and markets business to their corporate clients. And then -- but not only that, we also have synergies on the cost side of things, for example, in the IT space, right? So this is basically the reason why these 2 franchises are -- remain part of the group because we think they are completely core.

Okay. Any questions from the audience? Mark in the corner, if you could just wait for the microphone, Mark, so we can -- the people on the line will be able to hear your question.

Yes. Mark from BDL. I just had a question on SRTs because it seems like the regulatory tone on those instruments has turned slightly negative over the last 6 to 9 months. And I just wonder if you share that impression that I have. And also, if you can remind us the role that SRTs have played in reducing your risk-weighted assets and what's included in the medium-term plan in terms of the benefits from SRTs.

Of course, thank you. So basically, I mean, SRTs for me are a very interesting tool within the toolbox, right? So we've never leveraged too much on SRTs. I don't think we are one of the players that are using SRTs the most. And we see it more from a risk standpoint. So basically, to use SRTs to cover risks that we no longer want in the balance sheet or much more often risk, we want to down or decrease our risk in a certain sector because we're very strong in that sector, and we keep on -- we want to keep on producing originating loans, and we are closer to the limits that -- internal limits that we have. So we offset part of that through SRTs, and therefore, we can keep on originating on the sector. But as I said, it's a tool that we use more from a risk standpoint and from a capital generation standpoint. We're not using SRTs to retribute excess capital, if you want me to put it that way. I mean as every -- each and every SRT transaction needs to be approved independently by the ECB. So that's the way this has been working in the last few years, and there has been no change in that regard. So my perception, despite the noise that we can hear in the market, things have not changed in the -- on the ground. So I'm not aware that in any way, shape or form, we have seen delays in the transaction at this point. And actually, the other question could be, is there appetite in the market given the volatility that we have in the market and there is. So I haven't seen anything on that regard that would derail significantly the focus or the aim that we have out of this tool. And again, is this going to be a part of our next leg? Yes, as it has been in the past. So again, and I would like to reinforce the message, it's another tool within the toolbox that we can use to reduce risks where we want to keep on originating or things like that.

Very clear. Any more? Okay. Well, I think with that, that's a great note on which to end. Leo, thanks again very much for your time.

Thank you very much. It was a pleasure.