Why SocGen’s Oudéa is on borrowed time as Europe’s longest-serving bank boss
French bank has underperformed since 2008 while rival JPMorgan Chase has enjoyed succes
Cross the Atlantic, and the only bank boss to rival Mr Dimon’s longevity is Frédéric Oudéa of Société Générale. It is a telling reflection of the outperformance that US banks have racked up over European rivals that SocGen’s share price performance during Mr Oudéa’s nearly 11 years in charge is a decline of 67 per cent, with a negative TSR of 54 per cent.
It is timely to consider this for two reasons. Last week SocGen shares slumped again when the bank warned on profits after failing to hit over-ambitious targets. And within three months shareholders will be asked to extend Mr Oudéa’s tenure as CEO for another four years. Should they?
It is harsh to judge SocGen against JPMorgan, a bank that is one of the biggest success stories of the past decade. All of Europe’s major lenders have performed pretty poorly since the financial crisis, hurt by regulation, indecisive intervention from policymakers and a weak operating environment.
There has been a lot of focus on the woes of Deutsche Bank of late, thanks to repeated scandals, a slump at its once crown-jewel investment bank and a jump in its cost of funding. What is less appreciated is that among EU peers SocGen is second only to Deutsche in terms of share price underperformance over Mr Oudéa’s time in charge.
It did not start out this way. And indeed a key reason for the 55-year-old’s longevity is gratitude that in his early years in the job he guided the bank through three existential challenges in quick succession.
Back in mid-2008 he took a battlefield promotion and helped the bank survive first the €4.9bn rogue trading scandal that saw his predecessor ousted, then the global financial crisis that peaked only a few months later, and finally the eurozone extension of that crisis. This dragged on through 2012, during which time the bank’s reliance for financing on spooked US money market funds was particularly alarming.
His meld of determined leadership, financial expertise gained as the bank’s former finance director and political connections forged in the 1990s when he worked closely in government with the subsequent president, Nicolas Sarkozy, helped to bring the bank back from the brink.
Of late there has been some operational improvement, too. SocGen’s international business once looked like a tragicomic parallel of geopolitical tensions. with outposts in Egypt, Greece and Russia, all hit hard by crises in those countries. But at the last count the international unit made an 18 per cent return.
Another factor supporting Mr Oudéa’s lengthy presence at the helm has been his reputation as a decent human being — an underrated virtue in an era of bank scandals. SocGen has hardly been scandal-free: most recently it was fined $1.3bn late last year for US sanctions violations. But Mr Oudéa has helped clean it up. Compared to many peers, it now looks almost angelic. In a recent note, analysts at Keefe, Bruyette & Woods cite “no material litigation in the pipeline” as one of three reasons to be bullish about SocGen.
Sadly for Mr Oudéa, that same KBW note cites 11 reasons to be bearish — among them a measly capital buffer below most peers and declining revenue and profitability in core areas. This month, alongside its profit warning, the group outlined plans to restructure its investment bank with €500m of extra cost cuts. Mr Oudéa blamed a “less favourable . . . political, financial [and] economic environment”. A thorough plan to digitise the bank’s still branch-heavy retail bank is expected soon.
Despite the share price performance, Mr Oudéa has been understandably keen to stay on in his job and reap the benefits of repair work that he believes have yet to feed through to the bottom line or the stock valuation. Net profits were up 38 per cent last year at almost double the level when he took over in 2008. But its 7.1 per cent return on equity still trails its cost of capital and its main French rival BNP Paribas.
The SocGen boss is said to have the backing of the whole board. And for now at least, leading investors such as BlackRock seem patient enough. But 11 years and counting is a long time to wait for an end to underperformance. The board should start some serious succession planning.