Societe Generale CEO Slawomir Krupa wants to cut spending further after his plan fails

by Mathieu Rosemain

PARIS, Sept 20 (Reuters) – Societe Generale Chief Executive Slawomir Krupa is set to tighten the screws on costs further as he continues a turnaround strategy announced a year ago that has failed to revive the French bank’s share price.

Societe Generale, one of Europe’s cheapest listed banks, is trading at less than 30% of its book value despite ambitions to cut costs by €1.7 billion by 2026 and sell more than €2.7 billion of assets.

In addition to the sale of a stake in its Guinea operations announced on Friday, the bank, for example, raised $1.2 billion by selling its professional equipment financing activities in April.

Societe Generale is now tightening budgets across all divisions and middle managers are being encouraged to go beyond simply meeting their cost-cutting targets, a source familiar with the matter said.

Business travel is particularly limited and the supply of IT services has been reduced, said the same source, speaking on condition of anonymity because he is not authorized to speak publicly.

Societe Generale declined to comment for this article.

Romain Burnand, chairman of Moneta Asset Management, which holds a 0.46% stake in the bank according to LSEG data, says cost-cutting measures are starting to translate into results and is betting on improved performance in the third quarter.

“There were still some disappointments, I would say, real ones regarding the results. But it is a valuation that seems very depreciated to us and the bank has assets,” explains Romain Burnand, whose stake in Société Générale represents around 4% of its main fund of 1.8 billion euros.

Slawomir Krupa has chosen to strengthen the bank’s capital buffers rather than aim for quick returns or transformative asset sales. The Guinea deal will have a positive impact of about 2 basis points on the bank’s core capital ratio (CET1), a key measure of financial strength.

The chief executive dashed investors’ hopes of higher returns when he postponed a key profitability target by a year, aiming for a return on tangible equity of between 9% and 10% in 2026, while limiting the payout ratio to 40%-50%.

“I wouldn’t say they’re not on track to meet their targets, but we’ll only know if they will get there when we start to see a meaningful turnaround in earnings, particularly in the retail banking sector in France. And so far, that hasn’t happened,” said Flora Bocahut, an analyst at Barclays.

“It’s not a problem of ambition,” says Olivier Cassé, head of European equity strategies at Sycomore AM, which holds 0.4% of SocGen’s capital, according to LSEG data. “The new CEO wanted to tackle the issue of capital.”

This means lower share buybacks and dividends, which weighs on the share price. Société Générale shares closed at 22.9 euros on Thursday, down from the level before the strategic review was announced last September when the share price was around 26 euros.

RETAIL BANKING IN FRANCE

Another concern is Societe Generale’s retail banking business in France, where it cut a key target in August, eclipsing its profits and weighing on its share price.

French banks, including Societe Generale, have not benefited as much from rising interest rates because of the high cost of deposits in France. Societe Generale has also suffered from a poorly calculated interest rate hedging policy.

The bank’s net interest income, the difference between what a bank earns on loans and what it pays for deposits, has been hit, prompting it to cut its previously set target.

“They were unable to reassure us about the trajectory (…) of the second half of the year and of 2025 on this interest margin,” regrets Olivier Cassé.

“The execution was right, it was the communication that was wrong,” adds Sebastiano Pirro, chief investment officer of hedge fund Algebris Investments, of the CEO’s plans. Algebris currently has no stake in Societe Generale, according to LSEG data.

According to him, Societe Generale’s problems are low profitability and insufficient capital to significantly reduce costs.

TAKEOVER SPECULATION

UniCredit’s recent stake in Commerzbank has supported the banks’ share prices and led analysts to speculate that Societe Generale could become a target.

Two investment bankers who cover the European financial sector, however, dismissed the hypothesis, citing Societe Generale’s exposure to French retail banking activities with low net interest margins.

Bankers said a takeover by rivals BNP Paribas or Credit Agricole would raise competition concerns and scrutiny from French employment authorities, among other obstacles.

(Reporting by Mathieu Rosemain in Paris, with Tommy Reggiori Wilkes and Sinead Cruise in London, French version by Bertrand de Meyer, edited by Sophie Louet)