Société Générale plans to shift the focus of its investment bank towards corporate finance and advice as the French lender tries to move away from the kind of trading risks that pushed it to a first full year loss in decades.
The company said on Monday it would push “a client-centric strategy”, allocating capital “in favour of financing, advisory and transaction banking” to cut its reliance on more volatile trading flows.
The pledge comes after its equity derivatives business, which has been core to the bank’s identity for decades, pushed SocGen to a loss last year after the pandemic forced companies to cancel dividend payments, tearing holes in some of the structured products the bank sold to clients.
As a result, SocGen slashed the level of risk being taken by its equity division. It culled top ranks and created new products in an overhaul that sacrificed up to €250m in revenue but should reduce the cost base by €450m by 2023.
This part of the business has since rebounded to its best performance since 2015, helping boost SocGen profits in the first quarter and easing pressure for deeper changes.
The lender is now going to try to “deliver predictable performance” from its markets business, division head Jean-François Grégoire told investors on Monday.
“Last year, impacts from a unique market dislocation led us to review the management of structure products that were clearly too problematic in extreme market conditions,” Grégoire said. “We quickly decided to de-risk.”
SocGen said on Monday that its overall global banking and investor solutions business (GBIS), which encompasses both trading and investor funding, will now target return on “normative equity” — the bank’s measure of adjusted returns — of more than 10 per cent from 2023, against about 7 per cent currently.
The bank is seeking to achieve average revenue growth of approximately 3 per cent between 2020 and 2023 for the financing and advisory businesses while the markets business is aiming for “stability”.
SocGen wants to “normalise” revenues in GBIS at about €5bn in 2023, while targeting a cost base of €5.5bn-€5.7bn in 2023. It stood at about €5.8bn in 2020.
“All in, incorporating SocGen’s new target fully would lead to a [roughly] 8 per cent lift to consensus 2023 earnings,” noted analysts at Morgan Stanley.
SocGen’s shares were up almost 3 per cent in early afternoon trading in Paris, bringing their gains this year to almost 50 per cent.
However, the bank’s share price, at €25.64, is still below the point at which chief executive Frédéric Oudéa took over in 2008, after the Jérôme Kerviel rogue trading scandal.
Oudéa’s current term as CEO runs until 2023 and the revamp of the investment bank is one part of a strategy shift that will be key to his legacy.