The night before Société Générale’s chief executive Slawomir Krupa was due to lay out his strategy for the French bank last September, he warned his board to brace themselves for a share price drop.
The 50-year-old believed too much hype surrounded the plan he had concocted as a dose of reality for France’s third-biggest lender, people close to the discussions said.
Almost a year on, that caution has proved salutary. The stock tanked about 12 per cent that day. But it did not stop there. Long a straggler compared with other European banks and diminished since a rogue-trading scandal in 2008, SocGen has trailed peers further, its stock down 19 per cent since the presentation.
That has only turned the pressure up on the man tasked with breaking this downward trend. Krupa’s blunt approach, rooted in his experience heading the bank’s US operations, has focused on rebuilding capital.
But this has meant further shrinking a lender that competed neck and neck with crosstown champion BNP Paribas before the global financial crisis of 2007-2008, while contending with muted revenue growth. Though all French banks suffered because of external factors this year — including an uncertain domestic parliamentary election in June and July — SocGen is now worth a quarter of its Parisian rival and has been overtaken by Crédit Agricole, trailing both banks’ profitability.
The lacklustre strategy has yet to convince shareholders, who sent the shares down earlier this month when SocGen downgraded its outlook for its French retail bank, overlooking otherwise encouraging signs from its equity trading teams.
Referring to the unravelling of Credit Suisse, which was long seen as one of the weak links in Europe’s banking sector before being taken over by Swiss rival UBS in a government-brokered rescue operation, Morningstar analyst Johann Scholz said focusing on capital was “probably the correct strategy”.
“But you’re starting to see some concerns that more restructuring is needed, which needs to be funded . . . To get the cost-to-income ratio down, SocGen can’t really rely on the income side.”
Insiders and analysts had complained that loftier but previously unattained goals had been detrimental to SocGen under Krupa’s predecessor, Frédéric Oudéa. Krupa, a Franco-Pole who spent five years managing SocGen’s US business, has been applauded for his “no bullshit” ways by some clients and advisers, even if his more meritocratic, incentive-based approach has meant ruffling feathers among some veterans.
Sales of non-core businesses in the past 12 months at SocGen, from divisions in countries where it had less clout such as Morocco or Madagascar to an equipment finance unit, have raised more than €2.7bn. This has contributed to an improved capital outlook, with guidance lifted to 13 per cent core tier one by the end of this year — albeit lower than some peers.
More trimming is expected. About 900 jobs are to be cut by the bank in France, including at its headquarters in La Défense, the Paris business district. But in the meantime the bank needs to lift returns.
“Slawomir is in a difficult situation — not by his own making, but he has very few alternatives apart from very gradually transforming the bank,” said one former senior SocGen executive. “There is no excess capital. He has to cut costs and probably unwind some of the bad deals he has inherited.”
Once a magnet for the brightest French maths graduates, SocGen’s cachet has been dented by the shock €4.9bn losses generated by the unwinding of trader Jérôme Kerviel’s rogue trading positions in 2008. It has since been prone to other mishaps. The bank exited Russia in 2022, taking a €3.3bn hit.
Brighter spots include a thriving online banking franchise, Boursobank. Krupa is also seeking to change the culture in the investment bank, people familiar with the overhaul said, including through changes to remuneration structures, with bonuses tied to originating new mandates.
Krupa has equally signed deals such as a recent partnership in private credit lending with Brookfield Asset Management, a novel model for a European bank, or a tie-up with AllianceBernstein in equities. The idea is partly to shift the bank into an “asset light” model.
There are setbacks elsewhere, however. Penalised, like French peers, by local rules that limited how quickly banks could pass on interest rate rises to clients, SocGen performed worse than European rivals. It further scaled back its expectations for margins in the business this year, partly because of costly deposit payouts in France.
Krupa was one of two insider contenders for the top job. Though a SocGen veteran educated in France, he was less of a classic establishment choice than Sébastien Proto, a former Rothschild banker who graduated from elite school ENA the same year as President Emmanuel Macron and worked as an adviser to former president Nicolas Sarkozy.
Krupa, who previously headed SocGen’s investment bank, likes to say “facts over feelings”, according to people who work with him, earning him appreciation from big US fund managers.
“He has a diversity of cultures and experience. He knows how to be French when needed and American when he’s closing a deal, for instance with Bernstein,” said Alexandre Fleury, named co-head of the investment bank alongside Anne-Christine Champion in a series of reshuffles.
“That’s one of the values he brings — he’s worked in several parts of the bank, in several countries and seen different perspectives.”
Krupa’s capital focus has translated into an “everything could be on the table” approach, two people at the bank said, in which businesses are constantly under review.
That has been destabilising, some employees said. Meanwhile, Krupa’s decision to change the parameters of an annual French employee bonus scheme — that shrank the pot last year — has also irked.
Krupa has had occasional clashes with SocGen chair Lorenzo Bini Smaghi, people familiar with the matter said, but the disagreements have been out in the open as part of board discussions and sometimes even welcome, they added.
To add to the bank’s structural woes, Krupa has to deal with the regular takeover rumour, such as when Macron reignited speculation that SocGen could be a bid target in May.
Replying to a Bloomberg TV question, Macron said that “of course” the lender could be bought by other European rivals. The comments, which the president later said had been misinterpreted, caused internal frustration, SocGen insiders said.
“The president was talking about European political questions,” Krupa told a shareholder meeting that same month. “The probability of a large-scale operation, a cross-border operation in Europe is, from my perspective, nil.”
Despite the speculation, the bank could be a target and, given the fact that SocGen shares are cheaper than comparable rivals, it might be too early for investors to pile back in, said Jérôme Legras, head of research at Axiom Alternative Investments.
The clumsy handling of the first strategy reset a year ago was still too fresh, he noted. “They got burnt.”
