Société Générale SA is likely to pay out more of its profits to shareholders in 2025 through share buybacks after it reaches its capitalization target of 13% following the implementation of new regulations next year.
The French bank's shareholder returns have lagged those of many of its European peers in recent years due to its lower profitability and weaker capitalization. Its dividend payout ratio was less than 41.5% in 2023, ranking 10th in a sample of 18 of Europe's largest banks, S&P Global Market Intelligence data shows. The bank was the second-least profitable of the 18 banks in 2023 with a return on average equity of 4.5%, the data shows.
SocGen and other European banks are preparing for the impact of Basel IV rules on capitalization that come into effect at the beginning of 2025. SocGen's common equity Tier 1 capital ratio (CET1) ratio — a key measure of financial stability — stood at 13.1% at the end of June, Market Intelligence data shows.
"Our objective is 13% post-Basel IV, not more," SocGen CEO Slawomir Krupa said during an interview at the Bank of America Financials CEO conference. "Return [of excess capital] to shareholders is obviously an option which has to be considered extremely seriously and will be considered," said Krupa.
'Very compelling'
SocGen will aim to strike a balance between investing excess capital in organic growth and returning money to shareholders in the form of buybacks, especially in the context of the bank's low valuation and low shareholder distribution metrics, Krupa said.
"From that perspective, it is a very compelling financial decision," Krupa added.
Krupa made bolstering SocGen's CET1 ratio a priority when he took charge of the bank in 2023. The 13% target would put SocGen in line with the strongest eurozone banks and "take the capital debate off the table," Krupa said when presenting the bank's new strategy in September 2023.
Happy new year
SocGen expects an improvement in net interest income (NII) from its French retail banking division in 2025, Krupa said. The bank downgraded its domestic NII outlook for 2024 during its second-quarter earnings call due to lower-than-expected loan origination and a continued migration of deposits to interest-bearing accounts.
"2025 is going to be without any drag from this perspective," said Krupa. "The long-term perspective for French NII is a positive one, albeit a slow one as we saw this year with some bumps, but as rates go down and some of that behavior again stabilizes, it is a positive for the French banks and us as well."
SocGen and other French banks in 2023 suffered a contraction in domestic NII at a time then other European lenders were enjoying huge increases in revenues and bumper profits due to the recent sharp rise in interest rates.
Higher deposit costs due to regulated savings accounts that offered rates linked to inflation, largely fixed-rate loan books and restrictions on the rate at which banks could pass on higher rates, were among the factors weighing on French banks' NII.
