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SocGen CEO doubts merger would 'create value,' will focus on strategic plan


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According to Market Intelligence, April 2023

SocGen CEO doubts merger would 'create value,' will focus on strategic plan

A merger of Société Générale SA and another European lender would need to create value and would not be the answer to the lender's flagging share price, SocGen CEO Frédéric Oudéa said May 21.

Asked at a shareholder meeting if he did not fear the bank might be the subject of a takeover given the fall in its share price, Oudéa replied that the bank's priority over the coming quarters was its strategic plan, and that this would create more value for shareholders.

The bank's shares have fallen nearly 40% over the past year, while the STOXX Europe 600 Banks Index has declined 21%.

"We will see when the opportunity arises and depending on the environment if such a scenario creates more value or not than pursuing our strategy," Oudéa told shareholders.

The recent breakdown in talks over a potential Deutsche Bank AG and Commerzbank AG has reportedly sparked interest in the latter by other European banks such as UniCredit SpA and ING Groep NV. This would be a first step in pan-European banking consolidation.

While mergers may look simple on paper, "history shows that there is nothing more complicated than a merger," Oudéa said.

He said the fragmented nature of the European banking market with national rules that prevent the movement of capital acted as a barrier to consolidation. The lack of progress on creating a unified banking market was also a hindrance, he said.

"Banking union is not complete and we don't know if it will be completed," he said.

Union project

The EU's banking union project began in 2012 in the wake of the global financial crisis and was aimed at improving supervision. The first two pillars, joint supervision and the single resolution mechanism, are in place; the third pillar of pan-European deposit insurance has yet to be finalized.

Plans to create a scheme, designed to protect savers, have met resistance from Germany and other northern European countries that do not want to pay for bad loans in other countries. Greece, Italy and others are still suffering from problem assets inherited from the crisis.

Oudéa said the bank was answering investor concerns about its capital levels and had embarked on a cost-cutting plan as it seeks to shore up profits at a time when the European banking sector is under pressure from low interest rates.

The bank has been shedding nonstrategic assets to boost its common equity Tier 1 ratio, a key measure of financial strength. The ratio rose to 11.7% at the end of March from 11.2% at the end of 2018, just slightly off the bank's long-term target of 12%, and that was a "first step" in answering investors' concerns, Oudéa said.

The decline in both the bank's share price and its capital levels had left investors wondering about its strategy and management. However, shareholders voted a further four-year tenure for Oudéa, who has been at the head of the bank for 10 years and is one of Europe's longest-serving bank CEOs.