Citi’s Azzurra Guelfi, one of the foremost defenders of Societe Generale’s prospects among equity analysts, sees many similarities between its situation today and that of UniCredit in 2016.
The parallels are indeed obvious – so obvious, in fact, that it probably contributed to high expectations among investors about what SocGen’s new chief executive Slawomir Krupa would say at his first capital markets day in mid September.
The comparison made it less likely that Krupa would be able to engineer a rise in the share price on the day because the stock price had traded higher in anticipation of it. It was setting him up to fail.
To explain the parallel, Guelfi points to the need at SocGen today and UniCredit in 2016 to rebuild investor trust, boost capital and efficiency, and improve the business model.
One might add that the two banks are often compared with one another because they are both big and habitually underperform. They are both European banks running second-tier corporate and investment banks. France and Italy have close political and cultural similarities. And the banker that became UniCredit’s new chief executive in 2016, Jean Pierre Mustier, was even a one-time CEO candidate at SocGen.
Parallel lines
As at UniCredit in December 2016, SocGen’s investor day in 2023 was a chance for the new chief executive to convince investors that he was implementing much-needed changes, several months after he took over from a CEO who had failed to do so.
Unfortunately, the parallels end there.
UniCredit’s capital and non-performing-loan problem was much more urgent than the mere stagnation risk facing SocGen today. But Mustier met the call for shock and awe on his investor day head on.
Only a few days beforehand, UniCredit had announced a sale of its Polish lender, Pekao, plus negotiations with Crédit Agricole subsidiary Amundi over the sale of its asset management business, Pioneer.
Far from shying away from its capital needs, Mustier then announced an even bigger rights issue than the market had anticipated on the correct assumption that investors would take it as a sign that the bank had understood the need for higher capital in the post-2008 world, something other banks were then only beginning to understand.
Krupa in 2023 is not Mustier in 2016. It is not the French style to dismiss him after such an embarrassment
Crucially, on the investor day itself, he announced a €17.7 billion non-performing loan sale, not just job cuts.
UniCredit’s share price rose by 16% on that 2016 investor day. SocGen’s share price, by contrast, fell 12% on its 2023 investor day. Despite speculation about Mustier-style sales, none were announced, while to more sceptical analysts Krupa’s cost cuts and revenue assumptions seemed timid.
And yet there could have been a very close equivalent to Mustier’s pivotal Pioneer sale: Societe Generale Securities Services (SGSS).
As for Pioneer and Amundi, the most obvious buyer would again have been Crédit Agricole, through the latter’s CACEIS subsidiary, which has already been growing by acquisition and partnership.
While Krupa might yet announce sales or partnerships in businesses like securities services, the fact that he was not able to announce anything on or before the investor day was clearly a big part of why the share price fell.
Sense of loss
Was it just an issue of timing? Krupa and his team, in fact, may not want to sell – and that could be right. Since Mustier’s 2021 departure from UniCredit, the Italian bank has come to rue the loss of Pioneer. There is, too, something of a sense of loss of SocGen’s asset management business, which also in effect went to Amundi, in part due to actions Mustier took when he was at SocGen 15 years ago.
There probably are bits of SocGen’s business that it no longer makes sense to keep, most obviously – as at other international banks – non-European retail banking, in SocGen's case Africa.
SocGen sold out of some small African economies in June, which is part of the reason why the market thought a Mustier-style bombardment of sales and other corporate actions was coming in September. But even if it sold its remaining 14 African countries, it would not come close to UniCredit’s 2016 sales of Pioneer and Pekao in financial size.
There are also rumours of a sale of Societe Generale Equipment Finance, which could make sense to the extent that it would ease the liquidity burden on the group of its car-leasing subsidiary ALD, which is in the process of integrating Dutch rival Leaseplan. This may yet come.
Krupa’s argument seems to be that it would put downward pressure on the price if he announced an intention to sell.
There could be some truth in that if it made the bank look like a forced seller.
Meanwhile, there is no doubt some sense of vindication on the part of SocGen bears, including in the equity analyst community, that the plan failed. That bearishness, however, may be justified when it is based on an understanding of SocGen’s lack of options.
Krupa in 2023 is not Mustier in 2016. It is not the French style to dismiss him after such an embarrassment. He still has a chance to turn things around.
But it is not going to be showy, or fast.