Reuters logo
UPDATE 2-SocGen keeps faith with Russia investment
May 13, 2014 / 5:50 AM / in 4 years

UPDATE 2-SocGen keeps faith with Russia investment

* Targets 3 pct rev growth/yr through 2016 at investor day

* Seeks to improve return on equity to above 10 pct in 2016

* Commits to long-term aims in Russia with ROE of 14 pct

* Targets 50 pct div payout ratio in 2016 vs 40 pct in 2014

* Shares down 1.2 percent in sector down 0.1 percent (Adds CEO comments)

By Maya Nikolaeva and Matthias Blamont

PARIS, May 13 (Reuters) - Societe Generale, France’s second-largest listed bank, is keeping faith with its Russian investments as part of a plan to expand in overseas markets, seeing strong growth prospects there and expecting political tensions to eventually ease.

SocGen poured billions into Russia before the Ukraine crisis in a bid to take advantage of a rising middle-income class, yet

international banks exposed to eastern Europe have been in focus since Moscow annexed Ukraine’s Crimea, triggering U.S. and European Union sanctions.

The lender has taken a 525 million euro ($722 million) writedown on its main investment there, Rosbank, but its management was upbeat on its Russian prospects during a day of investor briefings in Paris on Tuesday.

“Of course we understand that there are risks of tensions (in Russia) ... but we have a development plan that limits the risk for Societe Generale,” Chief Executive Frederic Oudea told journalists, adding the bank believed that the parties engaged in the conflict did not want it to escalate.

SocGen said it intends to maintain its exposure to Russia at a “moderate level” of 3 percent of outstanding loans.

It expects to achieve a 14 percent return on equity in Russia by 2016, down from 15 percent under a previous plan but well above the group-wide target set at above 10 percent by end 2016, up from 8.4 percent last year.

“The return on equity (RoE) target seems more or less coherent with other Russian banks,” said Andrey Klapko, an analyst at Gazprombank in Moscow. Russia’s second-biggest bank VTB for instance targets a 15 percent RoE in 2016.

SocGen aims to continue to derive a quarter of revenue from fast-growing emerging markets.

“International banking and financial services will be one of the group’s main growth engines,” the bank said in a presentation, adding that only modest growth was expected in the mature retail banking markets of France and the Czech Republic.

On a group-wide basis, SocGen targeted 3 percent revenue growth over the next three years, a recovery from last year’s 1.2 percent decline but broadly in line with its French rivals and also in line with analyst expectations.


The bank plans to finalise a 1.45 billion euro ($2 billion) cost-cutting programme in 2015 and cap the rise in expenses at 1 percent a year, in a bid to improve profitability in an environment of slow growth in western Europe.

SocGen also aims to increase the dividend payout ratio to 50 percent in 2015 from 40 percent in 2014.

Shares in SocGen were little changed after the presentation, down 1.2 percent in a European banking sector which eased 0.1 percent.

“No scoop, all 2016 targets are already roughly in line with consensus,” a Paris-based trader said. “The only positive is the (dividend) payout. These targets should not trigger massive consensus adjustments though”.

French rival BNP Paribas has said it aims to deliver a double-digit percentage revenue rise over the next three years versus 2013 and an improved return on equity of 10 percent by 2016 - similar to SocGen’s targets.

Credit Agricole, more domestically focused than the other two, has forecast 2.5 percent annual revenue growth through 2016.

SocGen’s corporate and investment bank, which is traditionally weighted more towards equities trading than fixed income, sees 1 percent annual growth in market activities. The bank said it will maintain a “well-balanced” capital allocation, with the share of market activities limited to 20 percent.

A number of banks across Europe have revised their investment banking operations and exited entire product lines in pursuit of a more stable earnings flow in the aftermath of the banking crisis.

SocGen said it was well positioned to gain market share, taking advantage of increasing demand for direct lending and post-trade services thanks to the acquisition of brokerage Newedge.

It plans to maintain its common equity Tier 1 ratio, a key measure of financial strength, at 10 percent, which would translate into around 4 billion euros of excess capital which would be available for organic growth, acquisitions or share buybacks.

$1 = 0.7270 Euros Editing by Andrew Callus and David Holmes

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below