SocGen’s Krupa could tell his story better

The fundamental problem facing Societe Generale chief executive Slawomir Krupa is the fall in importance of the bank’s equity-derivatives base and the wider dominance of US banks in Europe since 2008, which has often meant that there is at best one regional firm, even on big deals.

Given its scale and value in domestic retail banking, SocGen finds itself in a position akin to the German Landesbanken: not a top-tier investment bank, nor a rock-solid retail player.

The answer must be to shrink – and a new private-credit tie-up with Brookfield Asset Management is related to that.

Given Brookfield’s global stature in alternatives, its choice to partner with SocGen shows the latter is a highly regarded bank for real assets.

But even that cannot justify SocGen’s €1.5 trillion balance sheet.

There is, therefore, a solid rationale behind the core elements of the plan that Krupa presented to the market last September.

While raising the target common equity tier-1 ratio could not help capital distributions and the share price in the near term, the essence of the plan is about acknowledging the bank’s perceived equity risk and limited ability to grow.

Shifting to paying dividends against reported rather than underlying income, similarly, is about developing much-needed credibility in the market.

Behind all of this is a sense of needing to be honest about the bank’s challenges. Although the entire industry adjusted only gradually to the new normal after 2008, SocGen was one of the banks that took a relatively long time to grasp and act on these changes, under former CEO Frédéric Oudéa. Krupa is trying to move beyond that dynamic.

His approach could be seen as a relief. But it has been ineffectively communicated. His target for as little as 0% revenue growth was obviously going to hit the share price hard. It should have been much more clearly justified up front – tying it to the creditability-building narrative, and especially showing that it is partly because of a high 2022 base, particularly in car leasing and in the investment bank.

Perhaps most importantly, the bank didn’t do anything to manage market expectations before the capital markets day in September, which resulted in an even bigger hit to the previously hyped share price than may have been inevitable.

There is also an issue of staff morale. People in the banking industry tend to like SocGen as a group of people, and it is perhaps a reflection of that culture that Krupa has held back from talking down his predecessor’s record.

However, perhaps one way to have dampened the inevitable share-price speculation around Krupa’s arrival before the capital markets day would have been to acknowledge that choices made by Oudéa left less room for manoeuvre, which is true.

Krupa’s decision to move the chief executive’s office back to a suite on SocGen’s 35^th floor at La Defense reinforces a view of the Paris-based bank as a closed and hierarchical institution. A reluctance to prevent or react to a sharp sell-off at the capital markets day last September adds to the sense that Krupa is a CEO who is perhaps more remote than his predecessor.

During Krupa’s first results call in August last year, the first question he faced from analysts was not about the specifics of the quarterly numbers but on his “mindset”: whether he was more minded to deploy capital for shareholder distributions or growth in corporate and investment banking.

This was a leading question, as obviously the answer would have been the former.

While Krupa responded by saying that he was focused on shareholder value creation, he could also have signalled that given the bank’s poor state, investors shouldn’t get their hopes up too much about capital distributions.

Bank chief executives should feel free to criticise their predecessors for the weaker elements of their legacy. In this case, Oudéa can be criticised for the relatively low capital he left behind, as well as being acknowledged for the bank’s domestic retail transformation under his watch.

Maybe honesty about the challenges that SocGen faces should be matched with more clarity around exactly what can be done to address them.