Morning, everyone. Thank you for being here for our first fireside chat with Slawomir Krupa, CEO of Société Générale. Slawomir, thank you for being with us.
Thank you. Thanks for having me.
I have a few questions, but first I want to ask a question to the audience, actually, a polling question. What's most important for SocGen share price performance over the coming 12 months? Is it the launch of a new buyback in the second half, bidding on French retail disposals, delivering the cost/income below 16%, the key target for 2026, the CMD, or asset quality? A lot to choose from. Let's see.
You don't have all the above?
Well, of course, the CMD.
Yeah, we're working on that. We're gonna. No, no spoilers today, I think. You know, depends on you.
I'll try. We will get into, you know, the subject-specific topics, but I need to start with a question on what's happening in the world. Iran war pushing the oil price high, lot of volatility, lot of uncertainty. How is your business impacted by that?
Short-term, the impact is not massive, of course, because what happens is, we have one set of things which we're certain of, is that, it does impact quite profoundly, I think, sentiment across, you know, most asset classes one way or the other. It obviously does impact the energy prices. What we're not certain of, and frankly, we don't know anything about that, is how long the war lasts and how these two first statements I made are going to evolve over time. If the war is short-lived, so to speak, which I guess is still a scenario from a geopolitical, political standpoint, well, then I think that it's going to be a significant blip, but not much more than that, right?
If the war lasts long, you guys know that sentiment across both consumer and corporate and energy prices are about the most powerful drivers of macroeconomics, right? From this perspective, the impact will be bigger, but it's going to happen later on. That's how we think about this. We navigate the volatility, we navigate the shifts. We're just talking about this, like almost every day there's a shift in a very short-term sentiment. We're navigating this. From a strategic standpoint, you know, it's back to a fundamental question of concentration risk. In this particular case, our exposure directly to Middle East is not significant.
We're not disclosing the figure, but if you take some of the things we said about Middle East and Africa, and some of the statements we made about the RWAs of our African subsidiaries, if you go through all these data, you'll discover that the exposure to Middle East is very small, a few billion EUR, actually, right? Concentration risk, and from this perspective, we feel protected, you know, as far as the area is concerned. Now concentration risk is one of the key features of risk management, in my view, has always been.
If I take most of the sectors that could be more heavily affected, none of them is higher than 1% of EAD, right? We feel you know focused concerned about the long-term impact on the macro of the world and some regions in particular, but also resilient.
Thank you. If then I move on, you know, onto a more strategic question. You've been CEO of SocGen now for three years, and you started with different priorities, capital, costs. You executed very quickly on the capital side, above 13%. What is your biggest strategic priority for 2026? What's top of mind for you now, aside from everything that's happening in the world?
In the end, it is about increasing operating leverage for 2026, but frankly, as a long-term objective. This is why we have the guidance that you know, which is growing revenues by 2% plus and reducing costs in absolute terms by 3%. This continues to be the name of the game. It's somewhat obvious because it's both building intrinsic capacity to increase profitability as you grow, but also obviously to build the inner resilience as you decrease your cost base, right? More specifically, delivering on all the targets of the CMD is obviously number one priority.
in this sense, you know, of 9.6 ROTE for 2025, excluding the exceptional items that supported our performance, we feel comfortable that we will, you know, reach the upgraded target we have for the ROTE above 10%. It's going to stem from, you know, continued growth across the business off a strong capital base, right? sound growth, and, you know, cost of risk under control. We maintain the guidance at 25-30 basis points.
You know, support from lower cost of funding in French retail and let's say the 1%-2% underlying growth rate for most of the inventories, if you will, in the business. BoursoBank objective to reach EUR 300 million is going to be supporting the top line in retail by roughly EUR 400 million, and continued sound performance of our GBIS business, while Ayvens is going to basically finish the job and benefit from the synergies that we've been extracting from the deal. All these components will deliver the CMD objectives that we had set.
Thank you. If we talk about capital now, you have some excess capital. When you think about, you know, order of priorities for what to do with this excess capital, how do you think about distribution, organic growth, or perhaps inorganic growth?
As I said many times, our target ratio is 13%. Anything sustainably above is considered excess capital that needs a strategic decision to be made in terms of deployment. From a process standpoint, maybe first, we said at the last results publication that we would be addressing this topic of excess capital once a year at the Q2 release. The message we wanted to convey is, one, that you know, no need to speculate every quarter about what's gonna happen, right? That's helpful, I guess. Second message linked to the first one is that it's not a mechanical exercise, right?
We don't meet like every quarter and, just see, "Oh, okay, today this is the ratio. Let's do something with excess capital." It's a strategic decision, the deployment of excess capital, and it needs some-
Mm-hmm
Some maturing, if you will, right? I mean, the easiest way we came up with is this idea that, you know, by the middle of the year, where you also have a good understanding of what's happening in a given year, you know, in most circumstances, it's a good moment to make this decision. It's a balance, theoretically, a balance between the three opportunities that you mentioned, organic growth, inorganic, and return to shareholders, but a very rational one, right? Growth on an organic basis, once you have the right capital base, which is the case today, is essential because it's our business, right? It's our business, it's our clients.
When there are sound growth opportunities within an environment in terms of risks that is, let's say, normal, through the cycle environment, it's a very good way to deploy capital because it builds long-term sustainability of the firm. On a marginal basis, it's obviously, especially in some of our businesses, a very high return actually on the invested capital, above 20%, for instance, in a business like F&A, but frankly, in a lot of businesses, because the fixed cost nature of a lot of our businesses is helping with the operating leverage. On a...
In terms of the return to shareholders, you know, below or at book, at tangible book, it is a very compelling, you know, opportunity to deploy capital with no execution risk, which we obviously take into account, comparing it to the other opportunities. In terms of the inorganic, we're constantly looking at bolt-on acquisitions. The problem is, if you want to stick to a rigorous capital management and stewardship of capital, one, you know, it needs to be meaningful from a strategic industrial perspective, so to speak, and it's not like this happens every day to come across these kinds of opportunities. The second point is obviously the price. Today, the combination of these two requirements, so to speak, doesn't yield a much good pile, so to speak.
That, that's how we think about this. Again, within the framework of, we are in the business of being stewards of this capital, this is a rational, precise, fact and data-driven exercise.
Perfect. I want to touch upon another hot topic in artificial intelligence, which has taken center stage in the market, starting from software, going to different sectors. Let's start with the broad questions. How do you see the opportunities or the threats to your current business model coming from AI?
Well, first of all, you know, a bit of a, again, process answer before going to the substance. It is a critical topic for everybody, right? I'm stating the obvious here, but this led us a couple of years ago already to do two main things. One, to create a separate company, which we call SocGen AI. It's working only for us, but where we wanted to locate, if you will, some specific expertise and a capacity to look at the bank from the outside in, right? Without all the, let's say, let's call them conflicts of interest of legacy approaches versus new approaches, etc . That's one.
Two, we have a pretty strong governance where the leadership team is involved, including myself, on an operational basis, to make sure that we focus the resources. It's always resources, it's always cost, etc , on the right topics, right? Because on AI, you can go very, very shallow and very, very wide, right? If you just, let's say, open the box, right? That's one. On substance, I think that today the level of reliability of the tools that you can put out or into your processes, combined with the level of regulatory supervisory, really expectations, right?
In terms of the quality and documentation of your tools when it touches something that has a regulatory content, which, as you know, in our case is virtually anything we do that touches clients or risk management, well, then the burden of proof, if you will, is so high today that we don't have in our industry, in my view today, major applications at scale in production for major topics, right? We have tons of experimentation all over the bank. I think this is something which is going to slow down real adoption, right, for a while.
Now on the flip side, this is why we've made the decisions we've made. It is going to be a massive factor of change in our industry, because in the end, we are a huge digital factory, right, that's processing data all day long, and that has a number of advisory and sales teams around that product, so to speak. If you think about this like that, you know, ultimately the level of disruption and of opportunity in terms of the cost-based efficiency, client satisfaction is going to be massive, right? This is how we think about it.
When you say massive, have you tried to quantify it? Is this SocGen AI helping you quantify it?
Today it's too early, frankly, right? Take the number one, obviously, and you guys know that the number one most advanced opportunity is today in coding and development, right? IT development.
Mm-hmm.
Normally and which we've done, right? We deployed the AI platforms to our entire development staff. You can expect easily cost efficiencies, you know, 20%+. I'm saying easily, right? I mean, push to the boundaries and, you know, if you look through to improvements that are gonna happen in the tools themselves. Recently there was new releases of the coding platforms that brought. We had another wave of massive improvements. You could go much higher. Remember also that there is a level of, as always, right, of consumption of resources, computing, and all kinds of other resources that are needed for AI to work, right?
I mean, five years from now in this space on balance, right, between the reduction in workforce that is going to be in 10, 20% increments, at least, but against the cost of operating it, I mean, it's going to be lower for sure, and better quality, which is, you know, two great news. Is this going to be a minus 80%? Frankly, I don't think so.
Thank you. If I stay on this topic and I think about how AI impacts the businesses that you lend to, yeah, the corporates, how do you assess that business? Because the market has been testing, especially in the software space, but also beyond software, you know, quite a significant challenge for some business models.
I mean, this is bread and butter work for us, obviously. We have included specific angles to analyze this, mostly two concepts. One is what we call substitution risk. I mean, it's our own concept, but which simply tries to monitor how a particular business can simply disappear or have some of its features, some of its product services disappear simply because the ultimate client can do it himself or herself with some new AI tools. The other concept is what's the downside risk to the revenues because of the commoditization that could happen, right? We added explicitly these two angles to our analytical framework, which forever had the technology disruption risk embedded in this, right?
Because some of the big problems in credit in general, right, and 10 years ago, five years ago, 30 years ago, was a technology breakthrough in a particular value chain, was always, you know, a risk which moved you from, let's say, normal deterioration or upgrade in operating performance to, well, binary outcomes, right? It's not different from this perspective. What we also have explicitly is an assessment of a company's ability to adapt. I think this is extremely important, right? In my humble view, in some of the, you know, headline sentiment trading about this topic like a month ago, you know, I think, you know, again, in my humble view, we were losing sight a little bit of the adaptation capability.
If you have an analogy with what happened 25 years ago with internet and let's say the digitalization of a whole swath of the economy, well, I mean, yes, you had huge new players and, you know, some of them are very, very well known magnificent companies today that emerged and became, you know, huge in the marketplace. Well, a lot of the incumbents also adapted well and, you know, just eventually reinforced their leadership. I think this is what's gonna happen, right? I mean, I'm not sure that all of the legacy companies across all the sectors are gonna be disrupted. I think some of them will be.
If they are able to adapt, they also have the means to invest today, and they are going to be the winners in the future. The combination of the risk but adaptation capabilities is how we look at the world today.
Thank you. I want to open it up to the audience in one moment, but I'll just ask one more connected again to the AI topic, but this time on private credit. The market is worried about private credit, BDCs, in particular. I noticed in Q4 that within F&A, you said, "Oh, you know, we grow fund finance." How do you think about this business? What risks do you see? You know, how perhaps you think you're senior enough that you don't see many risks. I would love your thoughts on private credits.
First, a few again, like, cornerstone comments. It's in our business in terms of risk management, the topic of concentration risk is key. I already talked about this earlier. It obviously applies very much to this business. The first answer is fund finance, which by the way, is not only private credit, when I refer to this in our company, it's not only private credit, it's some other collateral as well. But it's roughly it's a portion of our business with financial sponsors and our entire business with financial sponsors across all the asset classes, all the types of businesses, etc , in terms of risk, is roughly EUR 20 billion, including securitization, right?
Mm-hmm.
That's the first point. Private credit is only a portion of that, a significant portion of that. But in the spirit of what I said about concentration, it's fairly balanced, right? That's one. Second rule, you engage in businesses you know well. We've been doing fund finance for 25, 30 years.
Mm-hmm.
Right? We've been doing private credit for 25-30 years. My first comment about my perception of the market is there was a lot of latecomers to the party, and when you're a latecomer to a party that you don't, you know, understand well or you don't have a lot of expertise in, you are going to run into troubles, right? That's my current view of what's going on. Going back to the features of the business, then what you wanna do is to work with prime clients, right? Same thing. You wanna engage in your businesses, and it's the same when you engage in, say, oil and gas industry or tech industry overall, or healthcare industry, whatever.
You wanna work with the clients that are strong in their market, right? It's another feature of our business, and this is also one of the reasons why, for instance, in none of the instances that were in the press in the last few months, we had nothing to do with any of the topics that were in the press recently. More specifically on the structures you referred to, this again, concentration risk. When you look through to the collateral in our business there, we're talking about several thousands of names, right? This is another feature. You know, you need to have diversification on the look-through basis at the collateral level, not only at the client level, but at the collateral level.
It's an essential feature of this business because this is what makes it resilient through the cycle. There will be cycles, right? There will be cycles in credit. The essence of a bank's job, right, is to go through all kinds of credit cycles because we go through all kinds of macroeconomic cycles, but that diversification is absolutely key. Yes, the structure itself, this collateral for us is consistent, the way we finance this with an investment-grade rating.
Mm-hmm
... for almost the entire exposure we have to the sector. When you combine all the features that I just referred to today, we obviously monitor the markets like any other, and it's a market which has some signs of overheating, for sure, and some signs of turning sentiment. From an underlying perspective, we feel our portfolio is very strong.
Thank you. I'll pause here for a moment. I wanna see if the room has questions. If not, I can happily continue. Okay, it's the first fireside up. Let's leave the room to warm up, and then I'll ask you about French retail. If I think about 2026 and I think about the step up in profitability, a good chunk comes from French retail, and in particular, BoursoBank. I know you mentioned it already earlier, EUR 300 million coming from BoursoBank. How should we think about the delta year-over-year? Yes, if you have any comments on French retail even more in general.
the delta year-on-year, you should think about this as, I mean, a little less than EUR 400 million, because, you know, we clearly said that, for the last 2.5 years, BoursoBank was actually profitable, and able to deliver both, that positive contribution, albeit small, while growing at a very high pace, plus 1.8 million-1.9 million clients, last year with that positive bottom line. Clearly, the vast majority will come in 2026 in terms of the improvement from wherever they were to EUR 400 million of additional NBI. It is going to be driven by two main factors in 2026, which are important actually long term, which is, one, acquisition costs.
Clearly, the acquisition costs in 2026 are gonna be substantially trimmed down. And two, remember, though, as it is a very, you know, high growth business, you have a phenomenon which is significant, especially at the size that BoursoBank is right now, which is the maturing of the historical vintages, right? Because obviously, when you acquire a client, the level of AUA, so both deposits, but also the savings that are, you know, basically in the life insurance wrapper in France, you know, grow. You start from, say, we have some rules, right? Just not to be completely stupid with the acquisition costs. So you do have to deposit some money if you wanna get your little acquisition fee, so to speak. But it's small, right?
It's a few hundred EUR, and the average AUA today is 9,000 EUR. You understand, and you know, say 60% of that on average are deposits, right? The maturing-
EUR 9,000 per customer.
Say that again.
EUR 9000 per customer.
Yes.
Yeah. Okay.
This phenomenon of maturing of the vintages is obviously helping the top line as well. This allows to have some form of a balance, right? This is going forward also what we will be seeking, which is the combination of three statements, if I may say so. One, it is a growth asset, right? At 10 million, say we're at 8.8 at the end of last year, but at 10 million, roughly, clients in France. We're not done growing, right? It would be a mistake strategically to, let's say, stop aggressive growth at 10 million.
This thing needs to have, you know, by some date, you know, I can't you know tell you when, but it has to be more in the 20 or 25 million clients range to be, you know, for us to fully take advantage of a remarkable opportunity that this thing is. Now, from the size that where we are right now, this growth needs to be more contributive to the profitability of the bank. It's going to be a balance between the growth statement I made, but the optimization of the acquisition costs. That's the second statement. The third, the increased cross-selling and the increased, you know, value per client, you know, within the portfolio that we have.
This will deliver both growth, but with a certain minimum rate of return in terms of ROTE that would be contributive to the group.
Thank you. We published a note on Friday actually mapping the whole French Retail Banking and BoursoBank feature that's having grown significant in terms of primary relationships also since 2022, but having some room to go more on cross-selling. That's definitely the opportunity.
Absolutely. Remember, right, we monitor cannibalization obviously very carefully, and it's been consistently around our level of market share. Every 1,000,000 clients we acquire in the market, 100,000 comes from us, 900,000 come from our competition. We like that.
Great. I'll move on to GBIS now. We understand. We had some market guidance from some of your peers, especially Americans. We understand the year has started well, but instead the guidance for SocGen is more conservative, you know, on the base case having revenues down. Why would that be the case? Why shouldn't we just look at you know, peers and extrapolate something similar for SocGen? That's on global markets. Then I have another question on F&A, but maybe we start there.
It's this idea that, well, first of all, you always need to keep in mind the fact that from a business mix, both geographies and products, we are slightly different from the average market. The quick one is a much smaller prime brokerage, a smaller cash equity, even if we made, you know, good progress by acquiring Bernstein. In terms of the FIC side, fixed income side, much more geared towards rates and frankly, euro rates than the other components, even if we do most of the sub-asset classes.
In terms of geography, obviously more focused on Europe, even if we have a very sound and growing business in America, it's obviously not the majority of our business. When you take this, in many instances, this is going to have us outperform, you know, typically 2022, 2023, you know, 2024, part of 2024. It's gonna have us slightly underperform last year, right? Because of the fee and euro rates in particular being less of a contributor and so on and so forth. That's one. Second thing, as I said very clearly, in terms of strategic intent, we are focused on profitability and stability more than on growth. This is not just an empty statement. It actually shows in the figures, right?
If you look at the last five years, this statement I made in 2021 when I took over CIB, which was stability and an ability to capture, you know, part of the growth opportunities that we see in the market. That's exactly what we're doing, and it obviously translates into a number of decisions, right? Both from a commercial standpoint, in terms of capital allocation, in terms of risk management, and so on and so forth. The idea that we can run, you know, a very stable business around these. Currently the guidance is above the top of the range at 5.7%.
You know, the idea that we can run this business in a very controlled way around that mark, 5.7%, you know, 5.56%, last year, more or less, with a 20% RONA, and the right level of diversification and our clients happy, I mean, is something which we wanna do this way, right? You always have some of everything I just said infusing, if you will, the way we extract the value that's available in any market.
Right.
Hope that's clear. If you have follow-ups, I can.
Well, some guidance on the quarter would be welcome, but I know SocGen normally doesn't give it, so.
Yeah.
Okay, F&A. F&A was very strong in Q4, and I think you have quite a differentiated business model there. Can you talk us through what is differentiated for SocGen and what is the outlook for this business? Because this is where I guess there is quite a bit of growth for you to capture.
What's differentiating, I think, you know, 'cause you know as well, that it's not recent, right?
Yeah.
I mean, I remember when I did the Investor Day for CIB in 2021, I think I came out with a guidance, 'cause I was already a little conservative on the edges of, I think, 3%-4% CAGR. I think for the first 18 months, whatever we printed in the teens, right, in terms of growth. You know, if you look at the track record in terms of risk management, it's very strong. What's differentiating really is that most of these franchises, a little bit like the fund finance, are decades old, right? What we do there are businesses where we've been around for clients, you know, usually, right, for the ones who are privately owned.
We worked for the grandfather or the father, right, of the person running it today, right, so to speak. It's just an image, right? We've been around for a very long time, meaning we have access to a very granular, wide set of opportunities with hundreds of clients all over the world, right? This makes it. I was gonna say easy. Nothing's easy in our business, right? It makes it easier, let's say, or that probably is one of the differentiating factor, to capture growth of in terms of high quality, in terms of risk, and in terms of pricing, you know, wherever it is, so to speak, right?
This ability to be present in these situations all over the world for the most part, you know, is what drives this ability to grow sustainably while managing risks in a very good way. These businesses are what? You know, supporting clients' infrastructure very broadly understood, right? Not only transport infrastructure, but all of the energy infrastructures, obviously, all of the infrastructures linked to renewables and all these investments all over the world and, you know, real estate, some leveraged finance, but very contained in size. We'll talk about EUR 5 billion-6 billion of exposure there, and so on and so forth, right?
The granularity of this business and its very, very long experience and long relationships that we have is what I think you know helps us perform there.
I think at some point you made a comment that the demand for this business was so high that you were actually turning down some opportunities.
Of course.
Is that still the case?
Uh-
Is that the momentum, the need for investment is still there and you still see this demand?
It's still strong. I mean, so going back to Iran, I mean, you know, typically, you know, if there is a more significant macro and long-lasting macro impact, it's gonna weigh a little bit on this. To your point, the need for some of these investments, it's so fundamental, right? It's so structural that it's also protecting us from-
Especially in Europe, I would add.
Especially in Europe, of course. Yeah. Maybe one last comment. We have increased our focus in the last two, three years on the OTD piece of this, so you know, distribution.
Yes.
We increased gross origination.
Mm.
which obviously, you know, translates mechanically into an ability to do even more when the opportunity is there.
Clear. I'll try one last time to see if there is one. Yes. Questions. If you raise your hand, I don't think they see you. Thank you.
Thank you. Anne from Pictet. Going back to private credit and the collateral you mentioned, have you started to revalue part of the collateral? What kind of LTVs would you apply? Do you see any risk of a material repricing of some assets with what's going on with the BDCs, for example? Second question, it's on the rating. You mentioned it's IG rating, but is that your own rating or external ratings? Because as well in the industry, you have latecomers, and you can question the methodology even of the old agencies like Moody's, when you have the BDCs being rated triple B, triple B- . Although you have different risk profile, you can question as well whether. Could we see like a rating cliff and some implication as well? Thank you.
Starting with the rating, you know, it's internal rating, right? I mean, it's about our way. Again, back to my comment about us doing this for, you know, a few decades. That's one thing. In terms of the valuation of the collateral, you know, we don't see at this point, and again, going back to diversification, we also pay attention to sector diversification, right? You know, there's a very wide diversification from this perspective. Today, the level of repricing of that collateral is non-significant, right? The impacts we see on this portfolio is non-significant, right? The problem credits across thousands of names is marginal, right?
I think this is what's the most important, right? In the end, for the most part in the last, say, decade, right, this thing really took off. I mean, again, it's not a new business. It existed 20 years ago, right? But it took off in the last decade. For the most part, it was also consistent, especially in the U.S., with banks and mostly local ones, right? You know, retrenching somewhat from lending structurally in a post-crisis moment, and also seeing the opportunity from a capital management perspective, I guess, right, of this way of doing business. But it was somewhat normal credit, right? I mean, because there's this whole hype today about private credit.
What I mean, in the end, historically in the last 10 years, this was normal credit granting done by people who are doing a good job, right? As the market was overheating, say in the last couple of years, you had latecomers who started to do things that were, you know, less sensible. Let's put it this way. You know, to some extent, the market reacts reasonably quickly to these excesses, and is, I think, sorting it out. Now, from the BDC question perspective that you just had, I mean, in the end, you know, could some rating action, you know, have an impact, further impact on sentiment and maybe on their clients' behavior? I mean, certainly, right?
Again, that should not affect the in itself the quality of the credit of the collateral, right? Again, there's going to be a, let's say, a process of cleaning up the market, right? That's for sure. Today, I don't see this being a systemic problem in any way, shape, or form.
Great. Slawomir, I want to close like we started. The polling question said CMD most important thing. You're not gonna tell us, you know, the new ROTE target, but at least what axes or what themes shall we expect?
I mean, I almost already said it, but I'll give it a different maybe spin is when we started this journey, this particular journey 'cause the journey started 160 years ago, but this one, CMD in 2023, the diagnosis was that we needed to strengthen the foundations of the firm first, right, before going further in terms of growth or in terms of expansion or for that matter in terms of distribution. I remember some people were waiting for some big distribution announcement in 2023. You know, how absurd would that have been if we went out with some distribution targets off a low capital base? Anyway, you understand my point.
Now that we have this foundation's capital, but also a better cost base, right? Not perfect, but a better cost base. We can grow more meaningfully and in a controlled way, right? Of course, in terms of risk management, this is a feature of what we're doing, but also in terms of cost. Like basically, we're better at spending now that we've made significant efforts in terms of efficiency. The future is increasing operating leverage by being very focused on costs because we have room to do better and while taking advantage of a better cost base and a strong capital base to grow.
Great. Thank you very much.
Thank you. Thank you very much.