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

Good morning, everyone. Thanks for joining us for this second session in the first day. So 2 years ago, you stood on the stage and promised investors less, not more. It wasn't a crowd pleaser, but it was the right call. I think we can all agree on this. The scar tissue from that plan was earned the hard way. You cut distractions, fix the capital, stop overpromising and start over delivering, which what makes this week's plan the more interesting one. I think for the first time, Société is guiding to an ROTE that's credible and cover its cost of equity. And the shares still trading at a discounted multiple. So I would like to spend the next 40 minutes on the fun part. So what's in the plan what's deliberately not in plan and how much you're keeping in reserve. Slavomir, welcome.

Thank you. Thank you, Tarik. I do remember it was the next day after the CMD last time, there was some energy in the air. So I hope we can kind of go back to the energy but more positive. So -- but very glad to be here.

Right. So let's start maybe with the strategy. And so the road map looks more self-help driven than growth-driven, was it a conscious decision to avoid relying on optimistic revenue assumptions and instead build the plan around cost, capital and execution?

Yes. Well, so clearly, it was a conscious decision for a number of reasons. One, you're better off. If you think about the future, if you focus on what you can do and of course, plan for the opportunities of growth, but in a measured disciplined way, but really focus on what you can achieve. And here, I think in cost management, while we have done a lot, as you know, when adjusted for perimeter changes, et cetera, we are down 17% in terms of total cost versus 2022, which is pretty remarkable. It is true that we still have room to do better, right? Efficiency is a journey, but we were coming from a point where we were really off the benchmarks, right? Let's say it clearly and why we have achieved a lot, there is still room to grow. So you have an opportunity, right? It's realistic to go after this inefficiencies on the one hand. Two, it's something that you can actually manage and control much better than market environment and market conditions. And again, the growth that we're planning to do, and we're investing 2% CAGR in terms of RWA, and we plan to reach a 3% CAGR in terms of growth. This growth is going to come to a lower cost base higher operating leverage and higher resilience to market conditions. So yes, definitely, it was a conscious decision to focus where we can do the most value creation ourselves not depending on anything else.

Perfect. So the '29 plan feels, in my view, at least deliberately conservative. So how should investors think about the 13%, 14% ROTE range. And as the destination for Soc Générale simply is it destination or simply the next step towards a structurally higher profitability beyond that guidance?

So 2 questions really. I mean first, investors should -- I mean they think whatever they want to think, of course, but the target is the result of very deep and serious work about, again, the opportunity in terms of lower costs and the opportunity in terms of growth. And so the reason we like the ranges is because in banking, you do have a number of factors influencing your trajectory. And I think it's simply a fair assessment of where we can land by 2029. So is it conservative? I mean it's certainly not overly optimistic, let me put it this way. But it's not like we look at the spreadsheet and then, I don't know, 18% shows up there, and we put 5 percentage points into a vault. So we have room to buffer everything. It's absolutely not the case. But it's true that you can imagine scenarios where we outperform for sure, right? You can have exceptionally conducive market conditions. So we have a big market business that's doing well. This could be an upside. You could achieve something faster, right? I mean last time the big topic was capital. We ended up achieving that much faster. It was a big upside in terms of also investor perception. You could imagine scenarios, but again, this range covers the most scenarios in our view. So this is our target. But to your second question, it is clearly not the end of the horizon for us. And we do expect continuing to increase this ROTE afterwards. And hence, the reason why we also put the target for 2030 and beyond at 15% because the continuation of our work, so continued focus on costs, continued focus on disciplined growth. We have capital. We have highly accretive businesses where we can invest in terms of marginal ROE at high rates. So we would continue to this. If you put that index spreadsheet, you'll see that the sheer continuation of this trend allows for the ROTE to pick up, especially since we're maintaining the cost down. But then a very big topic for us is -- we expect the steady state of the transformation of the French retail, the new vision that we talked about yesterday to start kicking bigger volumes of value creation, if you will, towards that kind of time mark, right? So this is why it's going to be another step. You said it, an important step because we target something above the cost of our equity. But it's not the end of the story, we will continue to do better.

Perfect. Let's then dig into a bit more detail on -- starting with the revenues and growth. So your guidance of 3% CAGR, '26, '29, looks achievable but arguably not demanding. So maybe you can go through the key business line and she where the greatest potential upside or maybe a risk of execution there.

So it's -- I mean, the characterization, demanding, not demanding, I think it's about what is the central scenario, again, this notion of central scenario. In terms of execution capacity, but also market conditions the way they look today, and I think we would all agree that they look at least blurred, and that's also an important factor. But it's, again, very important to think about the pace of execution of the growth. I'm going to explain what I mean by that. The idea is when you invest too fast, be it in terms of capital or cost, you tend to generate on a marginal level, much more inefficiency. To some extent -- to some extent, there were plenty of other reasons. But if you look at our history, growth or excessive growth was never the problem, right? I mean, we had all kinds of ups and downs, but the company is one where growing, once resources are kind of freely flowing through the company was never an issue. But the problem is if you don't control growth, you'll end up piling up new inefficiencies, both in terms of capital allocation, capital returns at a very granular level in terms of clients, sub businesses, product segments, geographies and so on and so forth and cost as well. So part of the reason we keep this under control is the efficiency of the investment in growth. One could say, we do want to gain the same level of credibility with growth as the one I believe we get on cost management today. In terms of the businesses, I mean, French retail, is going to be one of the contributors. Overall, it's going to be fairly balanced between the retail -- the French retail, the international business and mobility and the investment bank. Going to be fairly balanced. But in French retail, the opportunity is really twofold, is within this vision of one market, one business, one unified approach to the individual clients in France based on the unique combination of strength that we have. We will expect growth to come both from the continued strong rate of acquisition and maturing of clients at BoursoBank. It's a key component. But at the same time, the progressive shift on the traditional retail to focus even more on the high-end segments from mass affluent to affluent and in the private banking where we do believe there is a singular opportunity in France and where we are already much better positioned versus, let's say, the average of our positioning, and we expect both of these engines to support growth in an otherwise subdued macro. But again, think about this with very idiosyncratic ways to make our way across, I mean, navigating the subdued macro in France. In terms of the investment bank, it's really continued controlled growth in the markets business. where we are investing specifically in prime brokerage in the U.S. F&A, as you know, I've spoken about this many times in the past, a preferred area for investments, also one where our significant size and the reputation and the expertise that we have in these businesses from structured finance, infrastructure, natural resources, trade and across the entire world and all of these businesses. So we have both the right size to be relevant virtually anywhere we're operating, and we've been doing this for 40 years, but also enough of room to still benefit from the idea that clients want to deconcentrate their providers, right? And we see that in our business in the U.S. wherever we invest meaningfully in areas where we do have the rights to compete, we do win because people want more providers that can do complicated things for us and not only rely on some of the biggest banks. So that's an important opportunity. In international retail, I mean, it's much smaller in terms of how much capital this requires at the group level, but Czech Republic, Romania are investment spots as well. And finally, Ayvens slightly different there because the curve should be more longer dated, if you will, because today, we still believe that the market is challenging. And that this is not the right time to be growing fast. But we do believe that with the strategy that we've followed so far of restoring margins being super conservative in terms of risk underwriting, et cetera, et cetera. We will continue to have a very healthy base to invest when the market is stabilized in terms of the EV values in terms of client behaviors and so on and so forth. In terms of the UCS which are still reducing and so on.

So you're growing revenues 3%, RWAs 2, which is actually, we can call it very way efficient way to manage your balance sheet. So what's the capital allocation will look like in the next few years? I mean I think it's an equation with the points you mentioned. But what tools are you doing to keep using to keep this RWA growth under control?

I mean it's, first of all, and back to my point about a right rate of growth. So that growth is controlled. So the first way to control this is really the allocation at inception, so to speak, at origination, both to the businesses that we believe and that's indeed in one of the slides of the presentation yesterday, we do have a whole range of businesses with high marginal ROEs well in excess of 20% and some of them were in excess of 40% on a marginal level. French retail wealth and savings and BoursoBank being one, F&A being another one, some of the businesses in the U.S. clearly match this kind of criteria. So one is money goes there, right? In the past, we used to basically meet up, I'm talking about 10 years ago. There was x amount of RWA. We would throw the RWA at everybody basically based on their current allocation of capital. This is obviously not going to happen, and the money is going to go where the marginal returns are higher. So that's one way of supporting what you described. The second one is to continue to be challenging ourselves both at business level, product level, geography level, in terms of what are the new dynamics because things change, of course, right? Competition dynamics also change in given markets, et cetera. And so being able to reallocate within your existing business to, again, businesses that are the most performing at the time, that's very important. And finally, clients. I mean when you run an important business size-wise and diversity-wise, you end up sometimes not optimizing allocation at the client level and basically running unprofitable relationships. So as you've seen in our numbers, and you know us very well, we've been doing a pretty decent job at that in the investment bank. And today, I think most of our return parameters are among the highest in the industry, right, 19% RONE for the CIB as a whole, which is again one of the best performance in the world for a EUR 10 billion-plus business, not a small one, above 20% in markets. This is all linked to this super controlled allocation of RWA at origination, but also as the businesses function, right? But here, we do have still opportunities in some of the businesses. I'm going to name, for instance, the corporate business in France. The SME business in France, where the same logic because it was bigger and slightly more complicated to do it than in the CIB, I think we have room to grow. So the 2% in terms of RWA, you should also think about this as the result of both new money but also recycling of money. So the growth, basically, capital allocation would be somehow higher because this will also be supported by reallocating resources where -- from where we pull them out from relationships or segments, et cetera, that are not profitable. And so that's the combined dynamic that's going to support the growth.

Last question on revenue on growth. In GBIS, and especially on markets, should the investors think about the EUR 6 billion, EUR 6.5 billion of [indiscernible] ex securities services, I mean -- which is now fixed market range as you see that through the cycle ambition or a level that could be sustainably exceeded if the market conditions are gathered.

So today, I mean, this has been a conversation with you and your colleagues for a while, this range in markets. And the reason we're increasing it from the previous one, which was EUR 5.1 billion to EUR 5.7 billion. So substantial increase is twofold one because, we do finally recognize that the range was a little bit conservative when considering where the business is right now in terms of footprint and ability to generate revenues, very stable revenues, the most stable revenues across the industry. So that was one reason. And the second one, we are investing and we are investing, in particular, in cash prime brokerage. It's a product gap that we somehow had historically, essentially because we didn't have a powerful enough cash equity business and research business, right? And so having addressed that gap with the acquisition of Bernstein we started to invest in the systems, right, that are obviously necessary to run at scale cash prime brokerage. We've been doing synthetic prime brokerage forever. And so it's a very specific distinct opportunity in a market that really craves competition after all the consolidation that happened there. And we do believe that there's a specific opportunity here for us, particularly in the U.S., but not only. Remember, we also have Newedge, which we had integrated way back now more than 10 years ago, which is a top clearer and a top FCM. So all these ingredients, right now are there, and we're combining this with the IT investments to be a relevant player there. So a combination of, yes, we run this business at higher rates, plus we are investing again in a controlled way. We believe that the range of EUR 6 billion to EUR 6.5 billion is a relevant one, right? Can we do better? Like I said earlier, I mean, in markets, you can imagine market circumstances where you get opportunities that take you above that. But I think now it's a very, very fair number. And may I remind you that it's basically close to EUR 2 billion higher than the range that was given when I first start to run the CIB in 2021. So you see it's a real substant progression in terms of footprint of this business. While we reduced the risks by 70%, if you look, for instance, at global stress test usage. So I think it's pretty remarkable.

No, it's good to see that this is a clear message of disciplined investment in this business because one of the fears ahead of CMD is that you have some renewed ambitions to grow faster there. But especially in an environment where now the IB and market is seen has potentially being conducive for the many, many years to come. So let's move now to BoursoBank and French retail. I think this is a center of investment strategy we presented yesterday. I think one of the most striking targets in French retail is BoursoBank, a number of clients, exceeding 14 million by '29. So at what point does investors' attention shift from client growth towards earning contribution and value per customer?

So first of all, I said I think for the first time here a few years back that we will have more than 20 million clients there, and we will be once the one at some point in time, the biggest bank in terms of penetration, in terms of clients in retail in France. And we're going there, right? So next target, 14 million. Hopefully, we do better, but that's the best estimate at this point. And remember also 3 years ago, there was some skepticism about this decision to actually grow aggressively this business in an otherwise very conservative spending strategy and so on and so forth. I think that the circumstances prove us right. And it's absolutely key, right, and a real responsibility for management to grow the unique assets that you have in your portfolio and that are going to build not only profitability by 2029, but really, what's going to happen in this company in 2035 and how we'll be able to embrace the future at that point in time whenever it happens, right? And there's a lot of discussions about AI and so on and so forth. And I am accustomed to say that I haven't heard yet, somebody telling us that they will divide by 12 the cost of a particular business in banking, thanks to AI. Well, we have a test case where with some AI, but not yet a lot. We do have a business which runs at 1/12 of the cost of running retail banking business in France otherwise. So I think from this perspective, in terms of its ability to grow, but its ability to maintain an extraordinary low cost to serve while reaching top rankings in terms of client satisfaction. It's a unique asset that we have, which will support our performance in this market. Specifically on your question about investors, I think, first of all, it's a cycle, right? That focus on profitability was there already 3 years ago. Currently, I feel like the focus of investors is more in terms of how do you grow this faster. I think now that we have also fixed up some of the way we book the investment, right, in accordance with the accounting norms. It allows us to actually do both at the same time. And why because the asset is mature because we have 15 years of history now in terms of how clients behave, how fast can we recover the investment costs and so on and so forth. And so right now, you will have basically a business which grows 2 million clients per year and which at all times, will be above 45% [ RONE ], which for a retail banking business in France, I guess, is a decent performance.

So you mentioned 2035. But in my previewing your CMD, I thought you will also give a longer-term number of clients than '29, which is usually you do in your CMD. So clearly, the ambition doesn't stop '29.

Absolutely not.