SocGen: Battle-hardened Oudéa sticks to his guns

Dominic O’Neill
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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?

It is also a culture that seems to foster unusually long-lived CEOs. Oudéa’s predecessor, Daniel Bouton, became CEO in 1993, taking the chairman’s role in addition in 1997. Most of SocGen’s executive committee members, meanwhile, have been there 20 years or more. 

Oudéa joined SocGen 20 years ago with a stint in London, after working as a French civil servant – he advised former president Nicholas Sarkozy while the latter was budget minister (coincidentally, both men have Hungarian family origins). Many of Oudéa’s fellow executives, by contrast, began their careers at SocGen. 

Since the crisis, some outsiders have been brought in at the top, including deputy CEO Bernardo Sanchez Incera (the Spanish name belies a thoroughly French education and career). Former BNP Paribas alumnus Michel Péretié had a three-year stint as SocGen’s head of corporate and investment banking, after joining from Bear Stearns in 2008. Importantly, Oudéa put an end to the combination of the chairman and CEO’s role with the appointment of an Italian, former European Central Bank insider Lorenzo Bini Smaghi, to the chair in 2015. 

Frederic Oudea-600
SocGen’s CEO Frédéric Oudéa is seen as an outstanding manager

Oudéa says the bank can now "better highlight all the changes, the benefits, how we can transform further". Its image, in other words, should improve.

SocGen’s return on equity has hovered around the high single digits; analysts still predict a roughly 8% return on tangible equity over the next two years. Its shares trade not far from 0.9 times book, according to Berenberg. That is not as high as it wants, but it is comfortably above the majority of its eurozone peers. 

"When you look at the European banking sector, Société Générale has done pretty well [in 2016] both in terms of results and share-price performance," says Oudéa.

SocGen’s CEO is seen as an outstanding manager, especially well-suited to the initial years after the crisis and probably an appropriate replacement for Bouton, who was "less rigorous on the details," according to a banker who worked closely alongside him. Spring 2008 was perhaps a natural time for the CFO to take the top job – particularly when Jean Pierre Mustier, at the time seen as an alternative candidate, was associated with the Kerviel and sub-prime losses thanks to his position as head of corporate and investment banking.

Compelling vision

But the doubters remain. Some wonder if the bank has properly articulated a sufficiently compelling vision for the future: is it enough just to keep its position among the big European banks and be one of the best in such-and-such a product? Oudéa’s interview with Euromoney is full of words like "confirm" and "reinforce". 

Would it be possible, if a grander plan was well-communicated, to convince the market it should reinvest more of its profits and really transform the bank? (Its payout ratio was around 40% between 2013 and 2015.) 

In Oudéa’s telling, SocGen has made progress on achieving synergies in its own international businesses and has staged some successful exits, such as the sale of its former asset management joint venture with Crédit Agricole, Amundi, which bumped up its tier-1 ratio by 25 basis points in late 2015. It reported a gain of €725 million in the first half of 2016 from its sale of shares in Visa Europe. 

"We have refocused. We have concentrated capital allocation in the core businesses where we think we can compete," says Oudéa. 

Putting aside where we’re operating geographically, my fundamental strategic view is that we should pursue the development of the B2B business 
 - Frédéric Oudéa, Société Générale

Most recently, the bank has been exiting emerging European markets that are very small or where it would be difficult to gain a top-tier market share, agreeing sales in late 2016 of its subsidiaries in Croatia and Georgia. This follows the sale of its Asian private banking business to DBS in 2014. 

On the other hand, it could also be a buyer in what Oudéa thinks is much-needed consolidation in emerging European banking. 

"We can absolutely look, conversely, at consolidation in countries where we already have leadership," he comments.

This has been a difficult time for banks, especially in Europe, but Oudéa sees an "inflection point" in late 2016. What he calls the "naive dream of a global world" is fading. Just as important for banks is that key economic determinants may be changing. He marvels how early 2016 saw the extremes of an oil price heading for $25 a barrel and the ECB deposit rate cut to -0.4%: "At the end of 2016, on both items, there was a big change of climate."

On the regulatory front he hopes 2017 is the year the rules are clarified and banks can get round to actually implementing them: "the beginning of the end of the transition" to a new era. Crucially, too, he thinks the new Basel framework will preserve SocGen’s ability to grow businesses where it has excelled, such as project finance. Global standards for risk weighting are of particular importance for French banks, due to their heavy use of internal ratings-based models.