SocGen trails further cost reductions in new strategy

Société Générale SA is aiming to cut costs further as part of its 2029 strategic plan, which it will announce in September, CEO Slawomir Krupa said.

The French bank posted a 4.1% year-over-year fall in operating expenses to €4.16 billion in the second quarter. The better-than-expected progress on costs prompted the bank to upgrade its cost guidance for 2026 to a 4% reduction compared to a 3% previously forecast.

SocGen has taken several measures during its current three-year strategy to lower costs, including the sale of non-core businesses and an overhaul of its technology infrastructure. The bank has suffered from operating one of the highest cost-to-income ratios — a key measure of efficiency — among Europe's largest lenders.

"If you see signs of [cost reduction] in our three-year performance or in this particular quarter, you should feel like this is a feature of what we're trying to do, and we believe that there's no reason to change that," Krupa said during the bank's second-quarter earnings call, addressing an analyst's question about what the market can expect from the bank's new strategy announcement on Sept. 21.

Recent improvements to SocGen's IT infrastructure will drive further cost-savings in the coming quarters, Krupa said. The bank has reduced its number of technology providers to five, from more than 700, during the current strategy.

"All this work continues," Krupa said. "It's been delivering very significant outcomes, but there is still potential for us to do better."

SocGen's corporate and institutional banking (CIB) division delivered a healthy performance in the second quarter amid significant geopolitical uncertainty and market volatility. The business registered a 17.4% growth in profit to €867 million from a 4% increase in revenue to €2.72 billion at constant perimeter and exchange rates.

The relatively muted performance of the CIB's equities business compared to that of similar units in other banks during the quarter — equities trading desks tend to perform strongly in periods of market volatility — prompted one analyst to ask Krupa why "it looks like you were not invited to the equities party this quarter."

"There is a strategic preference [for] stability and profitability over the particular opportunity in one particular quarter," said Krupa. "We were invited to the party, but we didn't drink [as] much alcohol."

NII growth

SocGen's strong annual growth in net interest income (NII) — the difference between what banks earn from lending and pay for deposits — from its French retail banking, private banking and insurance business is unlikely to sustain in the coming quarters, Krupa warned. NII grew 15.3% year-over-year to €1.19 billion in the three months to the end of June.

The impressive year-over-year growth in the second quarter is largely due to a significant fall in deposit costs since the same period last year, primarily driven by two reductions in the rate of the Livret A — France's most popular regulated savings scheme — since then.

"Everything else being equal, you will not see the same level of performance" in the coming quarters, said Krupa. "What you will see is the moderate increase of NII as the back book reprices in a slightly better rate environment."

The fall in costs and increase in NII helped SocGen post a 25.5% annual rise in group net income at constant perimeter and exchange rates to €1.79 billion for the second quarter, exceeding analysts' expectations, Visible Alpha data shows. Revenue was up 6.1% to €7.1 billion, a 1.1% beat.

SocGen's shares were up 5.75% as of 2.18 pm Paris time, the best performing European bank stock on the day.