Société Générale: déclinisme denied Premium
As French profits become less important. foreign earnings could underpin a re-rating
Granted, the top line doesn’t look pretty. Group net interest income has fallen by 7 per cent annually since 2011. French banking — still the bank’s earnings bedrock — is an especially difficult place. Negative interest rates and a flat yield curve mean a lower return on reinvested deposits. And there is limited ability to re-price liabilities thanks to state rules mandating fixed interest rates on savings. In its latest quarterly results in November, French retail banking operating income declined by a fifth on the quarter while lending margins were squeezed.
Thankfully for shareholders, SocGen is becoming less French. The lender earns half its revenues overseas. Its international retail and financial services division — which covers francophone Africa and eastern Europe — has grown in importance. Over the past three financial years its portion of group net profits has risen 10 percentage points (to 27 per cent of the total in 2015) even as revenues have slid slightly; loan growth is significantly higher than the group average. UBS reckons central and eastern European operations alone will account for one-tenth of profits by 2018. Recently, Russia, source of a €525m goodwill write off two years ago, went into the black for the first time since 2013.
Having plumbed the depths five years ago, the shares have beaten the FTSE Eurofirst 300 banks index by 81 per cent; payouts have also risen in absolute terms each year since 2012. The discount to BNP is unwarranted. If SocGen can keep expanding its overseas earnings while cutting costs at home, the gap will disappear.