SocGen: Battle-hardened Oudéa sticks to his guns

By:
Dominic O’Neill
Published on:

Frédéric Oudéa has been CEO of Société Générale for longer than any other current head of a leading European bank. His success in bringing the bank through the financial crisis and its aftermath is widely acknowledged. But can he articulate a convincing vision of SocGen’s future?

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Illustration: Britt Spencer

The market has got it wrong about European banks. That, at least, is the characteristically dogged view of Frédéric Oudéa, who, at 53, is already the longest-serving CEO of a big European bank. 

Since 2008, when Oudéa took the top job at Société Générale, investors have favoured domestically focused banks, especially simple and efficient retail and commercial banks. France’s second-largest bank, known for arcane markets businesses and structured finance, has found itself out of fashion. It has been the era, instead, of lenders like Lloyds, many of the Scandinavian banks and ABN Amro. 

This is not a model Oudéa appears to buy into. SocGen, too, could theoretically have become just a French retail bank, focusing on what the CEO terms business-to-client, rather than business-to-business. But, as he passionately argues from an office with a commanding view of Paris, such a retreat would not have been in SocGen’s interests, nor that of its shareholders, for more than perhaps a couple of years. 

"If there is one banking business that is going to be challenged in its model in mature markets like France, it’s B2C," Oudéa tells Euromoney, leaning back and forth in his chair to emphasize his point. "I’m more positive for B2B because, fundamentally, I consider that technology will have less impact on the relationship model that we have with our clients." 

Investors could do well to listen. Oudéa has led one of Europe’s biggest banks through years of external crisis, from sub-prime to the eurozone, from France’s economic woes to Brexit. Since 2015, he has also been president of the European Banking Federation. Oudéa, moreover, seems likely to stay put. His mandate runs to 2019 – he stepped up from the CFO’s role in May 2008, when he was still in his mid 40s.

SocGen’s CEO is responsible for a huge and mind-bogglingly intricate balance sheet, carrying out millions of daily transactions. That might call for a certain strength of character, and he has a reputation as someone whose deep trust is not easily won, even if in person he appears at ease and amiable. 

But the doubts remain. France’s economy continues to lag. SocGen has traded at a discount to the other big French banks, including its closest peer, BNP Paribas

There still seems to be a popular image of Société Générale as a risky and far too complex institution – an image partly sustained by Oudéa’s hope for more growth from an investment bank best known for products like equity derivatives. Corporate and investment banking makes up about a third of profit and risk-weighted assets at the listed French banks, according to Berenberg. BNP Paribas’ CIB ambitions are in some ways similar to those of SocGen, yet its proportion is lower. 

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Then there are the related reputational sores. BNP Paribas and Crédit Agricole have reached settlements on US investigations into sanctions breaching, which are still pending at SocGen. Oudéa also had to appear before the French senate last year to deny accusations of close involvement in offshore tax evasion in the Panama Papers scandal. Finally, after a French court ruling highlighted insufficient oversight last year, ministers said France would re-examine the bank’s €2.2 billion tax credit against Jérôme Kerviel’s €4.9 billion loss in 2008.

Are these wounds healing at last? Analysts think the Kerviel tax credit is probably safe. It provisioned against much of the US risk, including €600 million for litigation, in 2015. 

Slowly but surely, investors may be coming round to Oudéa’s perspective. After the Brexit vote, SocGen’s share price sank below €27. Half a year later, the price is almost double that. 

Some analysts agree that there is a story to tell about how SocGen has cut costs and risk, both at home and in international markets, like Russia and Romania, where it owns big banks. They say its share discount is not justified, especially given that BNP Paribas now trades above or not far below book value and BNP’s greater global systemic importance means it has to put aside another 1% in capital. 

One analyst says SocGen is "one of the few European banks with growth left". That is precisely because of its potential in corporate and investment banking and emerging markets, says research from advisers Kepler Cheuvreux. 

"Société Générale is still suffering from an image of a riskier bank, due to its investment banking activities," says another Paris-based analyst. "Its corporate and investment banking used to be a bit of a hedge fund. This has ended. It is making money with its clients now."

Those who work or have worked at SocGen describe an unusually close-knit culture – a consequence, perhaps, of it having achieved its size more organically than peers, without big mergers. BNP and Paribas only merged in 1999 – a deal that came close to absorbing SocGen. 

"You start to exist after 20 years at the company," says one former insider. Oudéa still looks to promote insiders first. 

This might breed a degree of idiosyncrasy in how it manages standard banker-type tensions. It does not use a credit committee for big deals, for example, instead relying on credit guidelines. If there is still doubt between the front office and the risk team, they go to someone higher up – perhaps a deputy CEO – to arbitrate.