SG investment bank shines despite Russia blow

4 min read
EMEA
Steve Slater

Societe Generale’s investment bank outperformed rivals in the second quarter with an 18% rise in revenues as a two-year restructuring paid off, but the French bank made an overall €1.48bn loss in the quarter after a big hit from its exit from Russia.

SG said on Wednesday it will target a return on tangible equity of 10% or more for 2025, which analysts said looked achievable after its revival plan has led to several good quarters, and should warrant a re-rating of its shares.

SG was one of the three biggest international banks in Russia, but it agreed in May to sell the business and took a loss of €3.3bn on the exit. That dragged it to a loss in the second quarter, although it said underlying net income for the business was €1.5bn, up 11.6% from 2021 and well above analysts’ expectations.

Frederic Oudea, the CEO since 2007 who announced in May he will step down next year, said the strong underlying results reflect the conclusion of two years of restructuring. He said the bank has “simplified and strengthened” the business model, put focus on digital technologies and ESG, and “invested in a targeted manner in businesses with strong growth potential”.

That included the investment bank, or global banking and investor solutions, where SG moved focus more to financing for corporate clients than institutional trading. It shifted assets to financing and advisory and targeted areas including project finance, infrastructure, structured products, private credit and energy transition, which has helped it to ride out the slump in underwriting most banks are seeing this year, particularly in equity capital markets.

Slawomir Krupa, deputy chief executive and head of GBIS, said the strong results reflected the strategic restructuring of the last two years, which is now mostly complete.

“One of the key pillars of the strategy was to diversify the business model more, which included increasing allocation of capital to financing and advisory and a lower allocation to markets, which we have done very resolutely,” he told IFR.

GBIS reported net income of €742m for the April–June quarter, up 47% from a year earlier and roughly double what analysts were expecting. The unit’s revenues rose 18% to €2.56bn.

Within that, revenue from financing and advisory rose 14% to €821m as the bank said it benefited from activities related to natural resources and infrastructure and its push to win ESG-related business.

The bank does not break down revenue by segment, but said its asset-backed products had strong growth while investment banking was “resilient” amid a decline in capital markets activity, as dealmaking slumped after Russia’s invasion of Ukraine and a surge in inflation.

Revenue from global markets, the other main part of GBIS, jumped 23% to €1.52bn as trading benefited from volatile markets. Equities revenue was €833m, up 7.5% on the year, driven by strong equity derivatives and prime services. Fixed income and currency trading revenue rose 50% to €683m, aided by rising interest rates.

SG’s shares were up 3.7% at €22.43 by 12pm in London. The shares are among the lowest rated in the banking sector globally, trading at near 0.3 time book value.

“Q2 results beat expectations significantly with underlying pre-tax profit about 50% ahead of consensus. The strength is high quality as mainly driven by stronger revenues and across the board,” analysts at Jefferies said in a note.

SG set several targets for 2025, including getting RoTE to 10%, and delivering average annual revenue growth of at least 3%. The bank’s underlying RoTE was 10.5% in Q2.

Oudea said there was nothing new to report on the search for his replacement, and a decision is still expected later this year.