Good morning, everyone. Thanks for joining us for this
Morning
second session in the first day. Sławomir, three years ago, you stood on the stage and promised investors less, not more. It wasn't a crowd pleaser, but it was the right call. I think we can all agree on this. The scar tissue from that plan was earned the hard way. You cut distractions, fixed the capital, stopped over-promising, and started over-delivering. Which is what makes this week's plan the more interesting one. I think for the first time, Société Générale is guiding to an ROTE that's credible and covers its cost of equity. And the share is still trading at a discount to multiple. I would like to spend the next 40 minutes on the fun part. What's in the plan, what's deliberately not in the plan, and how much you're keeping in reserve. Sławomir, welcome.
Thank you. Thank you, Tarik. I do remember it was the next day after the CMD last time, and there was some energy in the air. I hope we can kind of go back to the energy, but more positive. But very glad to be here.
Great. Let's start maybe with the strategy. The roadmap looks more self-help driven than growth driven. Was it a conscious decision to avoid relying on optimistic revenue assumptions, and instead build the plan around cost, capital, and execution?
Yeah. Well, clearly it was a conscious decision for a number of reasons. One, you are better off if you think about the future, if you focus on what you can do, and, of course, plan for the opportunities of growth, but in a measured, disciplined way, but really focus on what you can achieve. And here, I think, in cost management, while we have done a lot, as you know, when adjusted for perimeter changes, et cetera, we are down 17% in terms of total cost versus 2022, which is pretty remarkable. It is true that we still have room to do better, right? Efficiency is a journey, but we were coming from a point where we were really off the benchmarks, right? Let's say it clearly. And while we have achieved a lot, there is still room to grow. So you have an opportunity, right?
It's realistic to go after these inefficiencies on the one hand. Two, it's something that you can actually manage and control much better than market environment and market conditions. And again, the growth that we're planning to do, and we're investing 2% CAGR in terms of RWA, and we plan to reach 3% CAGR in terms of growth. This growth is going to come to a lower cost base, higher operating leverage, and higher resilience to market conditions. So yeah, definitely it was a conscious decision to focus where we can do the most value creation ourselves, not depending on anything else.
Perfect. So the 2029 plan feels, in my view at least, deliberately conservative. So how should the investor think about the 13%-14% ROTE range? And as the destination for SocGen, is it destination or simply the next step towards a structurally higher profitability beyond that guidance?
So, two questions, really. First, investors should. They think whatever they want to think, of course. But the target is the result of very deep and serious work about, again, the opportunity in terms of lower costs and the opportunity in terms of growth. And so the reason we like the ranges is because in banking, you do have a number of factors influencing your trajectory. And I think it's simply a fairer assessment of where we can land by 2029. So is it conservative? It's certainly not overly optimistic. Let me put it this way. But it's not like we look at a spreadsheet, and then, I don't know, 18% shows up there, and we put five percentage points into a vault so we have room to buffer everything. It's absolutely not the case. But it's true that you can imagine scenarios where we outperform, for sure, right?
You can have exceptionally conducive market conditions. We have a big markets business that's doing well. This could be an upside. You could achieve something faster, right? Last time, the big topic was capital. We ended up achieving that much faster. It was a big upside in terms also of investor perception. You could imagine scenarios, but again, this range covers the most scenarios, in our view. This is our target. To your second question, it is clearly not the end of the horizon for us. We do expect continuing to increase this ROTE afterwards, and hence the reason why we also put the target for 2030 and beyond at 15%, because of the continuation of our work, so continued focus on costs, continued focus on disciplined growth.
We have capital, we have highly accretive businesses where we can invest in terms of marginal ROE at high rates. We would continue to do this. If you put that in an Excel spreadsheet, you will see that the sheer continuation of this trend allows for the ROTE to pick up, especially since we're maintaining the costs down. Then, very big topic for us is we expect the steady state of the transformation of the French retail, the new vision that we talked about yesterday, to start kicking bigger volumes of value creation, if you will, towards that kind of time mark, right? This is why it's going to be another step. You said it, an important step because we target something above the cost of our equity, but it's not the end of the story. We will continue to do better.
Perfect. Let's then dig into a bit more detail on starting with the revenues and growth. Your guidance of 3% CAGR, 2026, 2029 looks achievable, but arguably not demanding. Maybe we can go through the key business line and see where the greatest potential upside or maybe risk of execution there.
The characterization, demanding, not demanding, I think it's about what is the central scenario, again, this notion of central scenario in terms of execution capacity, but also market conditions the way they look today, and I think we would all agree that they look at least blurred, and that's also an important factor. It's, again, very important to think about the pace of execution of the growth. I'm going to explain what I mean by that. The idea is when you invest too fast, be it in terms of capital or costs, you tend to generate, on a marginal level, much more inefficiency. To some extent, there were plenty of other reasons, but if you look at our history, growth or excessive growth was never the problem, right?
We had all kinds of ups and downs, but the company is one where growing, once resources are kind of freely flowing through the company, was never an issue. The problem is, if you don't control growth, you'll end up piling up new inefficiencies, both in terms of capital allocation, capital returns, at a very granular level, in terms of clients, sub-businesses, product segments, geographies, and so on and so forth, and cost as well. Part of the reason we keep this under control is the efficiency of the investment in growth. One could say, we do want to gain the same level of credibility with growth as the one I believe we get on cost management today. In terms of the businesses, French retail is going to be one of the contributors.
Overall, it's going to be fairly balanced between the French retail, the international business, and mobility, and the investment bank. It's going to be fairly balanced. But in French retail, the opportunity is really twofold. It is within this vision of one market, one business, one unified approach to the individual clients in France, based on the unique combination of strength that we have. We will expect growth to come both from the continued strong rate of acquisition and maturing of clients at BoursoBank. It's a key component.
But at the same time, the progressive shift on the traditional retail to focus even more on the high-end segments, from mass affluent to affluent, and in the private banking, where we do believe there's a singular opportunity in France, and where we are already much better positioned versus, let's say, the average of our positioning, and we expect both of these engines to support growth in an otherwise subdued macro. But again, think about this with very idiosyncratic ways to make our way across, navigating these subdued macro in France. In terms of the investment bank, it's really continued controlled growth in the markets business, where we are investing specifically in prime brokerage in the U.S. F&A, as you know, I've spoken about this many times in the past, a preferred area for investment.
Also one where our significant size and the reputation and the expertise that we have in these businesses from structured finance, infrastructure, natural resources, trade, and across the entire world and all of these businesses. So we have both the right size to be relevant virtually anywhere we're operating, and we've been doing this for 40 years, but also enough of room to still benefit from the idea that clients want to deconcentrate their providers, right? We see that in our business in the U.S., in wherever we invest meaningfully in areas where we do have the rights to compete. We do win because people want more providers that can do complicated things for us and not only rely on some of the biggest banks. So that's an important opportunity.
In international retail, it is much smaller in terms of how much capital this requires at the group level, but Czech Republic, Romania, are investment spots as well. And finally, Ayvens, slightly different there because the curve should be more longer dated, if you will, because today we still believe that the market is challenging and that this is not the right time to be growing fast. But we do believe that with the strategy that we have followed so far of restoring margins, being super conservative in terms of risk underwriting, et cetera, we will continue to have a very healthy base to invest when the market is stabilized in terms of the EV values, in terms of client behaviors, and so on and so forth, in terms of the UCSs, which are still reducing, and so on.
Thank you. You are growing revenues 3%, RWA is 2%, which is actually, we can call it very efficient way to manage your balance sheet. What is the capital allocation will look like in the next few years? I think it is in the equation with the points you mentioned, but what tools are you using to keep this RWA growth under control?
It is, first of all, and back to my point about a right rate of growth, so that growth is controlled. The first way to control this is really the allocation at the inception, so to speak, at origination, both to the businesses that we believe, and that is indeed in one of the slides of the presentation yesterday. We do have a whole range of businesses with high marginal ROEs well in excess of 20%, and some of them well in excess of 40% on a marginal level, French retail, wealth and savings and BoursoBank being one, F&A being another one. Some of the businesses in the U.S. clearly match this kind of criteria. One is money goes there, right? In the past, we used to basically meet up, I am talking about 10 years ago. There was X amount of RWA.
We would throw the RWA at everybody basically based on their current allocation of capital. This is obviously not going to happen, and the money is going to go where the marginal returns are higher. That is one way of supporting what you described. The second one is to continue to be challenging ourselves, both at business level, product level, geography level in terms of what are the new dynamics, because things change, of course, right? Competition dynamics also change in given markets, et cetera. And so being able to reallocate within your existing business to, again, businesses that are the most performing at the time, that is very important. And finally, clients. When you run an important business, size-wise and diversity-wise, you end up sometimes not optimizing allocation at the client level and basically running unprofitable relationships.
As you've seen in our numbers, and you know us very well, we've been doing a pretty decent job at that in the investment bank. Today, I think, most of our return parameters are among the highest in the industry, right? 19% ROE for the CIB as a whole, which is again, one of the best performance in the world for EUR 10 billion-plus business, not a small one, above 20% in markets. This is all linked to this super controlled allocation of RWA at origination, but also as the businesses function, right? Here, we do have still opportunities in some of the businesses. I'm going to name, for instance, the corporate business in France, the SME business in France, where the same logic, because it was bigger and slightly more complicated to do it than in the CIB, I think we have room to grow.
The 2% in terms of RWA, you should also think about this as the result of both new money, but also recycling of money. The gross, basically, capital allocation would be somehow higher because this will also be supported by reallocating resources from where we pull them out, from relationships or segments, et cetera, that are not profitable. That's the combined dynamic that's going to support the growth.
Thank you. Last question on revenue and growth in GBIS, and especially on markets. Should the investor think about the 6.5 billion of, because ex-security services, it's-
Markets
equities and fixed markets range. Should see that through the cycle, ambition or level that could be substantially exceeded if the markets conditions are gathered?
Today, this has been a conversation with you and your colleagues for a while, this range in markets. The reason we're increasing it from the previous one, which was 5.1 to 5.7, so substantial increase, is twofold. One, because we do finally recognize that the range was a little bit conservative, when considering where the business is right now in terms of footprint and ability to generate revenues, very stable revenues, the most stable revenues across the industry. That was one reason. The second one, we are investing, and we are investing, in particular, in cash prime brokerage. It's a product gap that we somehow had historically, essentially because we didn't have a powerful enough cash equity business and research business, right?
Having addressed that gap with the acquisition of Bernstein, we started to invest in the systems, right, that are obviously necessary to run at scale, cash prime brokerage. We've been doing synthetic prime brokerage forever, and so it's a very specific, distinct opportunity in a market that really craves competition after all the consolidation that happened there. We believe that there's a specific opportunity here for us, particularly in the U.S., but not only. Remember, we also have Newedge, which we had integrated way back, now more than 10 years ago, which is a top clearer and a top FCM. All these ingredients right now are there, and we're combining this with the IT investments to be a relevant player there. Combination of, yes, we run this business at higher rates, plus we are investing, again, in a controlled way.
We believe that the range of six to 6.5 is a relevant one, right? Can we do better? Like I said earlier, in markets, you can imagine market circumstances where you get opportunities that take you above that. But I think now it's a very fair number. May I remind you that it's basically close to EUR 2 billion higher than the range that was given when I first start to run the CIB in 2021. So you see, it's a real substance progression in terms of footprint of this business, while we reduce the risks by 70%, if you look, for instance, at global stresses usage. I think it's pretty remarkable, yeah.
No, it's good to see that this is a clear message of discipline, the investment, this business, because one of the fears ahead of CMD is that you have some renewed ambitions to grow faster there. But especially in environments where now the IB and market is seen as potentially being conducive for the many years to come. Let's move now to BoursoBank and French retail. I think this is center of investment strategy you presented yesterday. I think one of the most striking targets in French retail is BoursoBank, number of clients exceeding 14 million by 2029. So at what point does investors' attention shift from client growth towards earning contribution and value per customer?
First of all, I said, I think for the first time here a few years back, that we will have more than 20 million clients there, and we will be at some point in time, the biggest bank in terms of penetration, in terms of clients in retail-
Right
in France, and we're going there. So next target, 14 million. Hopefully, we do better, but that's the best estimate at this point. I remember also three years ago, there was some skepticism about this decision to actually grow aggressively this business in an otherwise very conservative spending strategy and so on and so forth. I think that the circumstances prove us right, and it's absolutely key and a real responsibility for management, to grow the unique assets that you have in your portfolio and that are going to build not only profitability by 2029, but really what's going to happen in this company in 2035, and how we'll be able to embrace the future at that point in time whenever it happens. And there's a lot of discussions about AI and so on and so forth.
I am accustomed to say that I haven't heard yet somebody telling us that they will divide by 12 the cost of a particular business in banking, thanks to AI. Well, we have a test case where with some AI, but not yet a lot, we do have a business which runs at one twelfth of the cost of running a retail banking business in France otherwise. So I think from this perspective, in terms of its ability to grow, but its ability to maintain an extraordinary low cost to serve while reaching top rankings in terms of client satisfaction, it's a unique asset that we have, which will support our performance in this market. Specifically on a question about investors, I think, first of all, it's a cycle. That focus on profitability was there already three years ago.
Currently, I feel like the focus of investors is more in terms of how do you grow this faster. I think now that we have also fixed up some of the way we book the investment in accordance with the accounting norms, it allows us to actually do both at the same time. Why? Because the asset is mature, because we have 15 years of history now in terms of how clients behave, how fast can we recover the investment cost, and so on and so forth. Right now, you will have basically a business which grows 2 million clients per year, and which at all times will be above 45% ROTE, which for a retail banking business in France, I guess is a decent performance.
You mentioned 2035, but in my preview on your CMD, I thought you will also give a longer-term number of clients than 2029, which is usually you do in your CMDs. Clearly the ambition doesn't stop-
No
in 2029.
No. Absolutely not.
Then a follow-up on Bourso. I am really keen you spend some minutes giving us your vision of the French retail with the, as you call it, cross convergence or integration of the French traditional network or brick-and-mortar, if I can call it so, and BoursoBank, and how do you see that, and basically the success of how you see the integration in few years, how we can actually gauge that if its integration has been successful, and what metrics would we watch?
Thank you. It is a very important topic for us strategically. I think a few ideas here. First, historically, we have been running these assets in a separate way. It was what it was. We had, remember, two different traditional networks not so long ago. We had Crédit du Nord and Société Générale, so two entirely separate entities addressing the traditional retail market in France. This was merged in the last three years, and so we have only one. BoursoBank was a challenger model, if you will, within the company, which was a brilliant idea. But too small to really stand on its two feet, if you will. It did not have the right profitability potential, and so on and so forth. Now things have changed. So we have only one traditional network. We do have private banking, which is doing very well.
We have the insurance company, which caters to all of these assets at the same time. We have a mature online business, which again, is going to make EUR 300 million this year, 60% ROTE in H1, and is growing at the pace that you see. We can shift our posture and our focus to, there is one market, the individual clients in France, with all the segments that you have there, and one business on our end, which is all the segments and various channels of distribution, which can then be tailored very accurately and very precisely to each segment. So the philosophy is now, BoursoBank addresses, of course, everybody who wants to be a client of a very successful online bank. The French traditional retail is going to continue to do its job, but under one management and trying to change in two ways.
One, focusing more on the high net worth, mass affluent clients in close relationship with the private banking. This already works very well. We do have a penetration rate there, which is twice the penetration rate we have as a whole in this market. This business is going to be run, again, under one management focused on the individual clients. Remember, traditional retail, it is 50% corporate, 50% individual. Now we are putting all the individual business under one roof and focus on mass affluent to affluent on the traditional side, and extremely important, on super segmented approach of the various segments of clients, depending on what the revenue opportunity per client is, adjusting with all the things that we have learned at BoursoBank from a tech perspective, process perspective, et cetera, adjusting the cost to serve to the opportunity.
If you follow me, you need to think about this as actually the major opportunity here to create value. Because today, in traditional retail in France, you have a mixed bag of all the segments and all the strategic thinking is, I have a physical network. What do I do with that network? That is not the right way to think. The right way to think is, I have clients that have very different profiles in terms of what they need and what they want from the bank and how much they are willing to pay. What we need to do, and we will do that by converging the strength of BoursoBank into the traditional network. We need to make sure that the clients are serviced based on the opportunity they represent. So really, it is mostly segmentation and convergence of cost to serve.
Here, there is a substantial value to be created. I think we are the unique player in France to be able to think this way because the others are either very relevant and strong competitors, don't get me wrong, on traditional retail, but not really benefiting from an online bank within their, let us say, portfolio of businesses. On the other hand, of course, you have powerful online competitors, but which don't have the opportunity in wealth and savings, right? France has a lot of challenges, but has a lot of assets as well, and financial assets in France are $7 trillion. It is the second biggest pool of savings, 18% savings rate, and so on and so forth. You know all this. So the opportunity is real, and somehow not entirely correlated to the macro.
This is how we think about this, and we think it is a really exciting opportunity. Measures of success, growth of BoursoBank on the other hand, and improvement in profitability on the other hand for the entire retail business in France.
Very clear. You clearly have an advantage versus the incumbents in France, and you have some head start versus the online ones. I think there is an obvious one. How much really room as you have to grow without being caught up by that big competitor that is making France as a playground at the moment?
I think it's still today, but, again, I think it was also here that I said last year that when you have strong competitors in your market, the first attitude is to be humble about it, right? Because even if they are slightly different, right, and even when I said earlier that we have the unique set of businesses, yes, we have a unique set of businesses, but that's not enough, right? We need to operate them, continue to operate them at a high level of performance, et cetera. So it's a constant battle, especially on the retail market. And in France, it's an insanely competitive market whichever way you look at it, right? Going back to the competitor we're not going to name here. But we have both the challenge, but also the opportunity to continue differentiating ourselves by being a bank, right?
You go to BoursoBank, you can do everything. You can have your credit card, and that's it, and a current account for your everyday operational, let's say, expenses and so on and so forth. But you can also have sophisticated investment products in a Luxembourg life insurance wrapper. You have one of the best brokers in Europe where you can do whatever you want across a wide range of products, et cetera. You're on a financial portal, which is the number one in France by far, and so on and so forth. So you can really use this to satisfy all the needs that you want to have. You have a retirement product, everything, right? So for our competitors, online competitors, not only the one you're referring to get there is a long way, because it's not only a matter of developing some applications, right?
Each and every product here has a regulatory dimension, both at inception but in the way you manage these products and so on and so forth. This is not, again, just some application. It's a banking business, highly regulated, highly supervised. So I'm not saying they're not going to get there, but it's a long road. Plus, in banking, usually you have to lend, and last time I read an article about this, I'm not sure that that competitor is willing to lend anything to anyone.
Clear. Let's shift to costs, which, again, was your priority for this plan, and you put it forward clearly as the main objective. You cite 500-600 million of AI opportunities, with around 350 already embedded in your operations. So how confident are you that AI ultimately becomes a bigger profitability lever than currently reflected in the plan?
There are two layers in terms of answer here. First, how confident I am that it happens at some point in time, 100%. I have no doubt that there is a horizon out there where some of our heavy-duty processes, manual rework, legacy IT architecture issues, et cetera, are blown away by this technology and everything that comes with it. My big question, and this is why you have noticed, I am sure, that I have been subdued somehow in drumrolling this opportunity. I do believe that it is going to take time, because again, you need to I heard Sergio earlier, and I actually absolutely share this view, that trust in our industry is a value that is not going to go away. Right now, we are all excited by the opportunity, and it is only fair.
But as soon as we encounter, as an industry, any type of trust issues about this technology, we will very quickly revert to focusing on trust and safety. Starting with this, it is going to happen. Again, 100% conviction this is going to happen, but it will take time in terms of design, strategy, implementation, and then validation. Authorization by regulators and supervisors, et cetera, so that you are 100% certain that the technology that you are using is 100% controlled. I always give this example of the credit models. I know how you are familiar with this saga in the European banking market in particular. But it took the industry 5 -1 0 years, depending on the actors, to get more or less right the documentation with the supervisors, the documentation of credit models.
Believe me, the credit model is the most simplest thing that you have in banking in the end. When I see this, I think that documenting the AI models or the AI agent and what they do in the systems, is going to take some time. So an incredible life-changing opportunity, but I think a horizon which is far more in the 5 - 10 years at least, than in the next 18 months.
Moving to another key pillar of your plan, which is the capital return and distribution. I think this has been, you have done already a lot of heavy lifting in the previous plan into rebuilding the capital to higher levels. So you come with EUR 21 billion of distribution by 2029. How should we think about the balance between ordinary distribution and excess capital? Of course, you have been very clear about it, but if you can remind us a bit how you think about it.
It's a fundamental question. Because it's about the stewardship of our shareholders' capital, and indeed, it was a cornerstone of the previous plan. But we had there to go through the step of first cutting before we were able to go back, or actually not back, because we've never been where we are in terms of actual distribution. Because we had to build that capital up. That's completely behind us, and today we can function normally, and we, based on the targets we've given yesterday, we expect the ordinary distribution to be in the range of EUR 13 billion over the next plan, and the excess capital to be anywhere near EUR 8 billion. Indeed, it's EUR 21 billion in total. That's the respective size of it. And we are 100% committed to be rational with excess capital. We won't accumulate above 13%.
We will be distributing excess capital unless and after funding growth. Because these numbers are, of course, after funding the entire growth that is in the plan. And unless we have substantial opportunities to accelerate highly accretive organic growth. But again, with the framework I gave you earlier, that's not the central scenario on the one hand, and then on the other hand, in terms of inorganic M&A, it's not something that we say we won't do, but we do commit to something extremely strict in terms of strategic fit requirements. So within the business portfolio that we have, enhancing what we do already, doing it better, plugging product gaps, potentially geography gaps, et cetera, but something within our fairway, so to speak. And then with very strict valuation and return criteria, accretion of EPS and so on and so forth.
Do you think that today we have lots of opportunities that would tick all the boxes here? No. But who knows? And so we're not closed for these opportunities. But let's say like today, if you ask me today, that's not the likeliest outcome. And so in the absence of other opportunities that would beat the return for shareholders of buybacks, we will be returning this capital to shareholders, and it would be equivalent to basically an effective distribution rate on our reported income of 80%.
In terms of the space of the 50%, you referred to the same wording of balanced. I asked you already a question last time, and you asked me to go to dictionary and see what balanced means.
Because I had checked. Because I had checked, because myself, I wasn't sure. That's why I suggested that.
It will still be dynamic to the margin.
Yes
Versus your valuation and so on, decided every year.
Yes, absolutely. I think we've been marginally above 50 last year. Yes, absolutely. That's the philosophy, yeah.
Just maybe a last question to close. Two years ago, the objective was to fix SocGen. We discussed this lengthily. Today's objective is to create value. Again, discussed it. If we sit here again in 2029, and I am sure we will sit in between as well, what metrics do you most want investors to say you fundamentally changed versus where SocGen stood in 2023? Profitability, valuation, earnings power, or capital return? You have to pick one.
Well, I was going to say all the above, sir.
Yeah.
Well, all of the above also because in the end, and I think the plan we presented yesterday is actually a testament to this, which is you need to be at maturity and performing across all dimensions, right? You cannot, of course, simply focus on cost because you are going to die at some point, right? That is not the point. You need to be very controlled with growth, because otherwise you are going to throw to the waste years of efforts, years of thinking strategically about efficiency and so on and so forth. You need to have earnings power because, in the end, it is a competition, right? Every single day, the tens of thousands of people that are working in the front line at SocGen are fighting for business in extremely competitive markets. So you do have to have the right businesses that can compete with the others.
In the end, with no profitability, there is no return to shareholders and no capacity to invest, no capacity to absorb shocks, and so on and so forth, right? So we are clearly out there set to continue to enhance the bank across all of the dimensions that I just referred to. Again, be the leaders in our area that I think we should be and we can be, and going back to some of the SocGen's leadership from way back.
Perfect. Thank you very much, Sławomir Krupa . Thank you for the opportunity.
Thank you. Thank you very much.