Like an old pair of slippers, retail banking is the division Société Générale knows it can rely on for a bit of comfort. When times are bad – as they have been lately – retail revenues, which comprise 60% of the group’s total, provide a welcome buffer. “For French banks in general and SocGen in particular, retail banking really is a cash cow,” says Guillaume Tiberghien, an analyst at Fox-Pitt, Kelton.
Société Générale has been more successful than BNP Paribas in attracting the best types of customers – graduates and high-net-worth clients. “It has the best customer base in French retail banking,” says Eric Hazart, an analyst at Exane in Paris. “It has a lot of young people and wealthy customers with a high savings capacity and the best ROE at 18.7%.”
Moreover, although BNP Paribas has lost market share recently, Société Générale’s seems to be increasing. Last year French mortgage lending grew by 10%, for example, and sight deposits rose 5.2%. But the prospects for further growth are limited in France, which is why BNP Paribas’s Michel Pébéreau hankered after Crédit Lyonnais for so long.
His solution was to expand to the west coast of the US. Société Générale CEO Daniel Bouton has gone for central and eastern Europe. His bank now has a presence in Romania, Bulgaria and Slovenia, as well as a 60% stake in Komercni Bank in the Czech Republic, which makes up a third of Société Générale’s international retail unit.
“To invest in the banking industry in the Czech Republic represents the same potential as buying a bank in Portugal or Spain 15 years ago when you look at GDP per capita,” says Philippe Citerne, CEO of Société Générale. “That is, revenues are going to expand.”
Marc Rubenstein, an analyst at CSFB, agrees, forecasting a 6% growth in revenues for the whole international retail division in 2003, up from 4% last year.
Money well spent Other analysts feel that though the price paid – e1.18 billion in cash – was high, that can be justified by Komercni’s growth potential. “I’m not nervous about the goodwill they’ve paid to acquire in CEE,” says Hazart at Exane. Based on its previous record, he’s confident that Société Générale will succeed in bringing down costs at Komercni, while at the same time increasing accounts. Last year the bank acquired 480,000 new customers outside France for example.
As for further acquisitions, “I would say our strategy is opportunistic,” says Citerne. “We decided to buy a bank in Tunis because we considered it was a solid bank with 200,000 customers, a good rate of return and a reasonable perspective of expansion and profitability,” he says of the acquisition of a 52% stake in UIB in November. “If someone offered me a nice bank tomorrow, I would leap at it.”
Given that retail banking seems to be something Société Générale can do standing on its head, that’s probably not a bad strategy to have.
