Societe Generale’s shares experienced a sharp decline of over 6% in early Monday trade following the release of the bank’s strategic plan by its new CEO, Slawomir Krupa. The plan, which had been eagerly anticipated, revealed that the bank expects little to no growth in annual sales over the coming years.
Krupa, who took over as CEO in May, has been tasked with revitalizing Societe Generale, which has fallen behind its French counterpart BNP Paribas and other European rivals. The bank has faced challenges such as a costly exit from Russia last year and concerns over its heavy reliance on volatile investment banking.
The lack of revenue growth and the reduction in capital targets, payout, and return on tangible equity ratio (ROTE) took investors by surprise. Jefferies analysts expressed their disappointment, stating, “We are negatively surprised by lack of revenue growth, increased capital target, payout & ROTE cut, and by the lack of details.”
Under the new strategic plan, Societe Generale aims to achieve a 9-10% ROTE by 2026. It also plans to distribute 40-50% of reported net income to shareholders in dividends and buybacks starting from 2024. These targets are slightly below the bank’s previous commitments, which projected a 10% ROTE by 2025 and a payout ratio of 50%.
The bank’s new targets are based on expectations of zero to 2% annual revenue growth between 2022 and 2026. However, Societe Generale intends to focus on improving its cost-to-income ratio.
Krupa, a veteran of Societe Generale and former head of its investment bank, emphasized his intention to streamline the bank’s activities but provided no further details. “We will strengthen the group by shaping a simplified business portfolio, while taking the right actions to build-up capital and increase flexibility, structurally improve our operating leverage and maintain our best-in-class risk management,” he stated.
Following the announcement, Societe Generale’s share price experienced its largest single-day drop since March. In a note, JP Morgan analysts commented that the new targets fell below consensus in terms of revenue expectations. They added, “It will take time for the shares to discount the cost improvement given SG’s mixed track record. The new CEO will have to earn investor goodwill through delivery.”
As investors digest the bank’s strategic plan, Societe Generale faces the challenge of regaining investor confidence and delivering on its promises.
More detail via Reuters here… ( Image via Reuters )