Good morning, everyone. Morning.
Morning.
Morning, Slawomir.
Morning, Derek.
Nice to have you again.
Thanks for having me.
What a journey. Two years ago, I remember at the same stage, I was trying to figure out why such a downbeat strategic plan. A reminder, it was the day after you leave it, 2023. Last year, we established that it was a necessary reset to expectations. The last two years were a roller coaster and required some believing, but your strategy has paid off if we go by the share price. French retail revenues have turned the corner in a very unstable political environment in France. You executed the Cost Energies implementation in French retail in Avence and showed the stock and business model can be resilient and sustain shocks, including in CIB. You delivered as well on the capital buildup and started to return capital as we speak.
I guess now probably the difficult part, not that I'm saying that what you've done so far is not difficult, but is to start to address the profitability in the long run and how you can actually cover the cost of equity. This is, I mean, we'll try to go through as many topics as possible in the next 40 minutes. Maybe let's start straight with that on capital and the strategy. First, on the capital, you built capital fast. You are now at 13.5% as of the first half, and you've generated more capital going forward. How do we square the fast capital build with your target of being at 13% + some margin by year end?
Thank you for your kind words. In the end, what's important is that in the way we communicate, when we talk about our targets, we set them, we design them, we try to be as close to reality as possible and not try to deliver a marketing statement, but rather a strategic one. We're very happy with what we've done so far. To your point, the main statement I can have about history here is that a lot more work is ahead of us and we're focused on this. Turning to your capital question, we had this target of 13% by the end of the plan, 2026. For a number of reasons, we delivered faster. We benefited from the postponement of the FRTB as well, of course. We have a good problem, which is how to use this excess capital.
One statement again, in the long run, we are not in the business of accumulating more capital than the target that we have. That's very important. The thinking of everybody who's interested should be framed by this statement first. Second, we are going to address the excess capital always with the same approach, which is how to best use it in the interest of shareholders. There are three main options. One, organic growth. Two, inorganic growth. Then, return to shareholder, arguably the best way to do it in the form of buybacks. We are very committed to be rational and to be good stewards of our investors' capital. We're not in the business of building up our ego or building up things for the sake of building them up. We're in the business of investing very rationally this excess capital.
Today, it is fair to say that organic growth is a very good option from a marginal rate of return, given the risk management framework at Société Générale. There are a number of businesses where we can do this safely in a diversified manner and generate interesting returns. Obviously, with the kind of excess capital that we have, we cannot, it would be stupid to channel all of that capital into organic growth. Therefore, we're not going to do that for obvious macro risk management reasons. That leaves us with inorganic and return of capital to shareholders. From a risk return perspective, right now, the buybacks seem the best option. We're committed not to buybacks. We're committed to making these decisions as we go in a very rational way in the best interest of shareholders based on facts and not opinions or sentiment and ultimately, obviously, a board decision.
Based on facts and rational, if we do some quick math, I know these maths are always difficult to be precise, but if you look at return on investment of buying back minorities on Avence, for example, versus a yield on a buyback at the current valuation, the math's becoming a bit tight. I mean, is that still a favor of buyback versus, you know, acquiring more of Avence or parts, or is the buyback still the priority at this stage?
I mean, the logic is, again, to be strategic because excess capital is a strategic resource, which needs to be handled strategically, right? The numbers point to something which is close in the example that you're giving. From a strategic standpoint, you need to make the determination of why would you do one versus the other. Also, obviously, since it is about stewardship of our shareholders' capital, what is the risk-adjusted return between the two options, right? This is how we intend to do this. Very rational, strategic decisions.
In terms of the capital return policy, expectation rises now rightly on distribution, including myself. I mean, I have, for full disclosure, a €1 billion share buyback additional with Q3. It's just to keep the capital under control in terms of forecast. How would the communication you think will be in terms of having a clear message in terms of what to expect, announcement and utilization of caps in terms of distribution?
Two ideas here. I think, again, these are strategic decisions, right? One thing I can say is that it's not going to be like a quarterly process of trying to square a ratio. This would make no sense. I mean, this is a deeper decision that needs to be taken in that context. That's one idea. The second one is, you said it, right? The buildup was successful and much faster than initially planned. We are, it's fair to say, in a situation right now where we want to kind of establish some foundations, right, and some grounds for the long term. In this perspective, we're trying to figure that out, knowing that you also have some pieces outside which are not entirely clear. I had the discussion in an investor meeting earlier today. You know, what about the FRTB?
How do you account for this, right? Today, you cannot account for this as gone, right? Because today, this is not the statement of a supervisor. Whatever my feelings about what is going to happen are, from a management perspective, I have to account for this particular charge coming early 2027. Today, we're basically building the sustainable foundation of long-term policy. We'll figure that out. No announcement as far as Q3 is concerned.
I want to ask this question later, but as we know, since you brought up FRTB, what's your sentiment in terms of capital requirements and demand from the supervisor mostly coming? I mean, we were all worried about these on-site inspections about a year ago. Now we hear about having more internal models, you know, revisions up with high-risk density that push the market to do more of securitization and synthetic securitization. How do you see this buildup of capital evolving when you think of your capital evolution?
Sure, actually. I think the first element, and this was also factored in our thinking about the 13% target, because back then, maybe not you, Derek, but some people were questioning why 13%, it's too much or whatever. I had these conversations. One of the answers, not the only one, was when you run a bank, you cannot run it, you know, close to whatever the limit is. I'm not even talking about the regulatory requirement, but the expectation of the market, etc. You have to cater for all kinds of uncertainties that are inherent to banking operations. Regulations and the part that you supervision more precisely, the part that you just referred to is part of the uncertainty. The most important thing there is to have the toolbox to manage it. Like, and capital buffer is one, obviously, the obvious one to manage anything.
We're more than there in this respect. Then is what you just referred to, right? Having a very strategic approach to capital management and being able, from a more business than SRT perspective, the ability to react to the stimuli that you receive from the outside world, right? That being said, I also think that we're reaching some form of a plateau in terms of the supervisory actions there. I mean, we have on-site inspections, all of us, like many times a year. I think overall, we're closer to wherever they want us to be than to the beginning of that process.
Very clear. Thank you. Moving now into your strategy and your aspiration for improving the profitability of the group, I'm sure you are probably taking care already of the next plan and what’s the leaders in terms of now converting this restructuring into higher profitability. What would be the key pillars of your, sorry about this.
Sorry.
What would be the key pillars of your new strategy? I have a strong idea, but I'll let you comment on this and then we can dig on.
I mean, it's not going to be a surprise to you. I think a key pillar, not the only one, but the key one will remain efficiency and cost management. Just to keep it simple, it's kind of obvious on the one hand, but also if you look at benchmarks in terms of cost per RWA, because if you only look at cost to income, obviously you're embedding, you know, top 10 considerations and market feature differences, etc., etc., jurisdiction differences. If you look at cost on RWA, I mean, you're pretty close to something that is really comparable. There, you know, we have more work to do.
There's absolutely no reason, you've heard me say that in the past, that we would have some form of either as French banks or as Société Générale some sort of a curse and some sort of a structured inability to deliver better efficiency. I think this remains a number one target. When we started our work with the new management two years ago, we were faced with a certain situation, but also major projects, restructuring projects, which were a burden, an opportunity, of course, but a burden of their own at the same time. I'm talking about the merger of the French retail banks and Avence, of course. We had to deal with this first. We are, to your point, maybe we'll come back to this later, we are delivering there. Clearly, this was not the end of the battle in terms of efficiency.
Across the board, across the group, not only in French retail, we have room to do better and we are already working on this and we will work some more. In terms of the top line, it's across the group first, reallocating more organic capital than in the first plan. As you know, part of the capital buildup for it not to be dilutive was done internally and part of it was basically very strict control of organic growth. We can release that because of the capital situation that we're in. To the point I was making earlier, it's very, very profitable on a marginal risk-adjusted returns in many of our businesses. That's what we intend to do. That alone, if you do the maths, and I know that you're doing them well, is also very supportive of the performance.
In the end, you know, continuing to execute well on risk management, obviously, is key as well. I mean, usual cocktail, but clearly cost and efficiency are still a pillar of what we need to do.
Okay, maybe starting with the cost part of the Crédit du Nord . I mean, often I hear, I mean, I've been hearing that for more than a decade, France is impossible to take out costs. It's difficult. Some have tried. What's your position here to actually implement that? Because that's basically the name of the game for you in terms of bringing the whole group cost. This is, I would say, the division's cost heaviest in the mix.
First comment, and it's not about, you know, defending French reputation whatsoever, but one of the benefits of having people from outside like Leo and bringing a wealth of experience and expertise from other markets is to challenge us to do better in a number of ways, but also sometimes to remind us that it's not easy to take out costs in Spain. Definitely not easy to take out costs in Germany and many other jurisdictions. I think France has this image, but it's not an excuse not to do our job. I think in France, like in any other jurisdiction, if you're focused on taking advantage of natural attrition rates, for instance, they are actually significant in some of the pockets and actually in some of the most challenging pockets like French retail, some of the attrition rates are high.
The question is, how are you using this to fuel your ability to deliver actual outcomes on costs? While at the same time, obviously optimizing, and we've discussed this in the past, optimizing some of our spending. What's idiosyncratic from a cost perspective to Société Générale is that when we took over two years ago, we had very high IT spending with outcomes which were comparable to that of the market, right? Meaning, you know, we were not ahead of the market from a technology perspective. We were in line with the market. Basically, we were inefficient, sorry, to a pretty large number. Dealing with this, which has nothing to do with employment or whatever, which has to do with how you source your IT expenses, etc., etc., is a huge cost lever.
Last year, we, for the first time in probably ever, reduced the, in absolute terms, the spend there. We're continuing this year. We, for instance, in this case, intend to continue optimizing this expense. All I'm trying to say here is that the combination of all the levers that you have, if you, instead of looking for excuses, right, focus on delivering on your agenda in terms of cost efficiency, I think you can do a lot. Maybe it's slightly slower than, say, in America, for sure, but it is doable and there's absolutely no reason to use that excuse not to do it.
Your target is 60% cost income in France and group next year. Can you share with us what could be a range or a realistic level you could reach?
You mean 2026 or later?
Later.
Maybe that's a little early. I don't want to give you that scoop. Listen, we're focused on delivering 2026. It's very important. We don't want to kind of project ourselves, especially out there. Of course, we're working on this before delivering, executing, and delivering on our promises is absolutely key from a cultural standpoint in the management team today. We're focused on this. For 2026, as you know, the unpacking of how we get there has to do with no more CTA. It's still over $300 million this year. No more CTA next year, which, by the way, will be like the first year, I don't know, in something close to a decade that we will have no CTA and that whatever investments we need to make, which we are making continuously, comes off the baseline of our business profitability. That's a big piece.
The second one is obviously the contribution of Boursorama Bank to the cost of income because the acquisition costs, which are substantial, as you know, hundreds of millions, come off the top line. This will contribute both to reaching the target in terms of cost of income at French Retail Banking level and group level and obviously supporting the ROE target. As I said earlier, the continuation of all the work on the IT spend and other initiatives that we have. There's a lot of work to do. At the same time, obviously delivering the last leg of the restructuring of Avence and moving it from whatever, a little south of 60% cost of income last year to the 52% target next year. That's how we're going to do it.
The statement for the future is we need, as I said earlier, to substantially continue to substantially decrease the cost base. We will. The next leg will be a substantial improvement over this target.
Very clear. I think you mentioned BoursoBank and I think the converters, perhaps, as you put it in your CMD two years ago, of the brick and mortar model and the digital model will probably contribute to that better cost efficiency overall. Could you maybe remind us, because that was a while and I think it's still valid within your thinking on how you see this business evolving, how do you see actually these two networks coexisting and how that will evolve?
I mean, the side you're referring to, which indeed was important because it was a real thinking about the business, was that you have two assets and we're blessed for that, that we have both today in the French market and we're the only ones to have both to this kind of level of NBI and footprint with the clients. On the one hand, you have the traditional banking model with a very high cost of income, but a very high NBI per client, very high, right? That's one piece of the equation. The second piece of the equation, you have Boursorama Bank, which handles today 8 million clients with a full-fledged. That's extremely important, right? In that regard, we're very different from virtually any other competitor today, from the biggest ones to the smallest ones.
We have an entire full-fledged bank that has €60 billion of assets and, you know, high numbers of deposit per client, close to €10,000 per account, right? If you look at these things, no one else is in that kind of a situation. These guys are running 8 million clients, number one in client satisfaction consistently over the last decade or so, and with 1,100 people. Here we have something which is extraordinarily efficient in terms of costs, in terms of client satisfaction, which in retail is the name of the game, and in terms of growth. The only thing is that the NBI per client obviously is a fraction of what you have in traditional banking.
The cross-convergence is this idea that as BoursoBank grows both in size, client base, and maturity, it will, it has, and it will work more and more on increasing the revenues per client. It's both the intensity of the relationship and the structure of the product offer, the ability to offer, say, a different package for high-end clients because of the breadth of the product offer we can, right? You can actually, and I encourage you to do so, you can be banked almost like in private banking by BoursoBank as long as you accept the self-care aspect of it. Growing the NBI per client as we grow further the assets in more mature ways, so to speak, is what needs to happen there. At the same time, on the traditional banking, it's extraordinarily important to protect the top line.
This is by increasing the client satisfaction at the end of the day while decreasing substantially the cost of operating this client base. These two trends are what we need to foster, work on consistently, and will deliver both as we go, better and better performance in French retail, but also ultimately provide a comprehensive hedge to changing behaviors, right? In the end, yes, maybe we have that online asset which has taken over, maybe this is 10 years, 15 years, 20 years from now, has entirely taken over the business, but by then it's probably the number one bank in France.
That's very clear. It's a good transition. The competition on digital banking in France so far was not very difficult. There were some players that never really found the right business model. Now we have Revolut with strong ambitions, not only in France, but France is their Western Europe headquarters, and a bit everywhere in Europe, actually Ireland and the UK. How do you see that as a threat, or how does that actually, more importantly, change your strategy on client acquisition for BoursoBank ?
I think the first comment is when you have a, by all means, powerful competitor making your market the focus of his, or you have statements where they want to compete specifically in Europe for market, the first thing you need to do is to pay attention, right? Not to treat this lightly because you could go and say, Revolut, to the point I was making earlier, is not in the same business, right? We, again, offer broad products on the brokerage side, you know, life insurance in Luxembourg wrappers, you can buy alternative investments, you can do virtually, again, anything in BoursoBank and hence the current substance that you have there. We could go, we don't really care because these guys are making payments. That's absolutely not our attitude.
Our attitude is there's a powerful player that has a slightly different strategy, go wide and shallow before going deep, while we basically did the opposite, go very deep instead of wide and shallow. In the end, you know, it is to be seen who will be the winner. We pay attention, right? When we pay attention, what do we see? We see that there's, for instance, from a customer acquisition perspective, strategy, there's a difference, right? Much more marketing and certain features of the product offer that are more on the marketing side of things, while we are focused on basically paying a fee to the customer, but making sure, right, even in the structure of the fee, that substance in terms of deposits and product ownership comes fast and we monitor this maturity of the client, this NBI per client very carefully, etc., etc. We're probably both right.
Adjustments to the commercial policy will come as we compete, right? This is what's extremely healthy about a situation like this, right? In the end, today we are in the business of offering full-fledged banking services on an online basis, number one in client satisfaction and number one in terms of breadth of the product offer. That remains and will remain a key feature of what we're doing already and where we want to go, right? We're in the business of online banking.
Could you get inspired by the Revolut model to take the best of it in terms of expansion outside France, or as you explained, it starts at being France and then.
Listen, I mean, the international expansion of BoursoBank or, I think more accurately, of the digital banking of SoGé outside of France is an obvious strategic topic on which we're constantly working. In the spirit of everything that we're doing, we don't want to, you know, make decisions based on slogans or kind of marketing statements, right? The idea of doing this is very appealing and seems simple.
The practicality of it, because of the deep, deep differences between jurisdictions in Europe in terms of client behavior, in terms of product offer, in terms of even like the value proposition, how you're making money as an online, as an online, but as a retail bank, is so different from one market to the other that if we were, say, to try and duplicate very deep jurisdiction per jurisdiction operations, that would require, you know, very substantial investments and the capacity to be relevant in all these jurisdictions that today we don't have, right? The idea that we're just going to, you know, take a bunch of extremely successful French bankers, put them in Italy and all of a sudden be successful, that's not something I'm supportive of. On the other hand, we do have very strong features in what we're doing, which we could expand.
We're thinking about this, but no announcement there.
Very clear. Moving now to the revenue side, I'm sure you're glad that we don't ask you about NII every quarter, but still, it's a big part of your growth and especially in France. How do you describe now the dynamics in terms of, you know, deposit migration? We've seen now with always going in France, and I'm not asking you to comment on this, but there could be some uncertainty where we see a bit more of savings, less investment, and then, you know, cost of deposits or on the asset side growth. How can you describe the dynamics on NII in French retail? Revenues in general, not NII.
Revenues and starting with NII. NII in our case, first of all, very strong growth year on year, quarter on quarter, because of the end of the drag of the hedging. If you compare H1 to H1, a low single-digit growth on NII there. The trend there is going to be marked by, one, clearly the stabilization of the shift from non-remunerated to remunerated deposits. It's still going on a little bit, but nothing compared to the massive shifts that we had in 2022 and 2023 and a little bit in 2024 still. Stabilization of this, support on the NII on deposits because of the livret A price coming down. That's a tailwind, significant. It's not revolutionary, but significant. Basically a stability with that support and repricing of the backbook on the loan side because, as you know, we have very long-dated fixed-rate instruments.
As the backbook reprices, and now that we have reignited growth in terms of mortgages, this is going to be also supported. Again, because of the features of the French market, this is not something, and I was very clear about this, that is going to be explosive in terms of growth. It is a number of longer-term trends that are supportive from this perspective. Now, from a volume perspective in the future, clearly it's mostly in retail driven by the GDP growth and the macro dynamics of a particular country. The good news is that against the backdrop of a lot of political uncertainty, a lot of political activity, you have a resilient growth. I'm not saying that 0.6% expected for this year is something stellar, but it is resilient, especially if you compare to what the sentiment seemed to be a year ago. From this perspective, good news.
What we're forecasting is a low single-digit growth of the loan book. The good news in our case is that we have a very strong fee origination in retail, which is based on our very strong market-leading dynamic in terms of asset gathering in life insurance on the one hand and also with our private banking in France in particular and across the entire network. We're constructive and we see this growing. As you know, our fee component in the NBI of the retail is very substantial.
Very clear. I mean, moving to Avence, which is a large part of your revenue generation, it was a difficult start, the merger, to say the least. Now, with the used car sales normalization well advanced and the integration as well, how do you see the growth of the business, maybe taking the three parts of revenues, you know, used car sales, services, and fleet growth, and put that with the operation leverage? How do you see the profitability recovering in this business?
The short answer is we see it recovering and converging to the objective that we set, which is, I remind you, 13% -1 5% ROE by 2026 based on a 52% cost to income, which are both, you know, high performance levels in the market, especially the cost to income, which is obviously excluding UCS impact, as you know, because sometimes we would communicate differently from this perspective. That's important. At that kind of level, you have something which is clearly accretive to the overall equation, provides some form of diversification because the cycles there are slightly different from the rest of the bank. The growth prospects are strong for a number of reasons, both in terms of behaviors of the customers, fleet characteristics, etc.
What's very important is, as we took over with my team, and in this case, in particular with Pierre, who is overseeing this business, we made a few determinations. One, that from a margin perspective, this business had been run without enough regard to the fixed-rate component in the contracts, right? In the growing inflationary environment, this has, across the industry, compressed margins very significantly. We took a very important decision, a little bit against the market trends at the time, of saying, no, right? If you want to run this business in a healthy way, you have to work on restoring the margins and you have to understand what you're doing, right? You're extending fixed-rate instruments with a variable cost based on the service margin side, which I remind you is half of the, basically, of the NBI there, right?
We were focused and still are on making sure that the business we underwrite is a good business from a margin perspective. The second feature is, as things were moving a lot, as you know, on the EV side of things, which was seen, say, five years ago as a massive growth underpinning the business because of the cost of one unit, obviously there. People were very keen on doing this. Here, once again, two years ago, and well ahead of many of our competitors, we said, I mean, this doesn't look as easy, as simple as it used to, and we need to be very careful in risk managing this aspect of the business. This is why you see significant improvements in margins and significant improvements in core profitability, but muted growth. This is entirely by design and because of the decisions I just described.
The future for this, on top of the restructuring benefits, is growth. You see, off a very healthy base, both in terms of cost to income and in terms of margin structures and in terms of fleet structures, we do actually expect a substantial uplift there in profitability down the road.
Thank you. We have five minutes left. I don't know if there's any question in the audience. No, I will carry on. Maybe five minutes to speak about what is actually quite a sizable division, the GBS, sorry.
Yeah.
Yes, that's the forward.
That's a division of the regulators. Maybe more on the capital market side, we've been enjoying quite nice environments in the last few quarters. You always mention this word, conducive, and not to extrapolate that environment and being cautious. Do you believe the environment we are now is probably the new normal or we should be careful not to extrapolate too much what's been seen in the last few? Listen, just to give you some perspective, when I took over CIB, this was in 2020 and starting January 1, 2021, we had posted, I think, $3.6 billion NBI and basically there was a $1 billion hole because of the COVID markets, as you may remember. Right. The normalized steady state at the time was around $4.5 billion. Today, the last guidance that we gave was above the top of the range, which is above $5.5 billion.
Keeping it simple, you have $1 billion of revenue more than back then. Extremely important, with a fraction of the risk that we were running at the time because the RWA and the market side are down 30% and stress test usage is down 70%. Not only do we have $1 billion more, which was there quite sustainably over the last few years, I'll come back to the conducive market conditions, but just to set the scene. $1 billion more at a fraction of the risk. That's what we're working on, making sure that we operate this at the maximum capacity, but with a very low risk profile, which leads us to what? It leads us to also leave some of the marginal opportunity to make money on the table for the sake of higher stability and better risk return over time. That's extremely important in the way we think.
More specifically on your question, the market conditions have been supportive, and it's quite remarkable. We could go, we don't have time, but we could go year by year since 2021, and every single year there was something very specific that was driving volatility up. Trends, multiple trends during the year were present. Both are very conducive to the business while never going into dislocation. These were like the perfect conditions. Obviously, then you have differences, asset classes by asset classes, blah, blah, blah. As you know, on the fixed side, for instance, we are geared more toward rates, not so much towards credit and blah, blah, blah. Without consideration to the business mix differences, these were somewhat perfect conditions. Do I think that it's the new normal? I don't think that perfect conditions are the new normal, right? We will see different things happening from a volatility perspective.
Obviously, hopefully not, but you need to be mindful of potential dislocation. It's not like the world lacks reasons for profound instability. Going back to the heart of what we're trying to do is to operate this business with a very low risk profile, and with that statement, trying to capture the opportunities with the low risk profile. We'll try to do our best this year, probably above the top of the range.
Very clear. Thank you very much, Slawomir. Thank you for your time.
Thank you.