Societe Generale (SCGLY)

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Société Générale (EPA:GLE, NASDAQ:SCGLY) France's second largest bank by market capitalization, is a banking group (highly integrated holding company) that offers products and services related to insurance, different types of credit/loan/lease financing, asset management and retail & investment banking.^[1] At the core of the company is corporate and investment banking (3rd largest in Europe) with operations in 33 countries and a net banking income about the same as its retail division in France. Abroad, subsidiaries and partnerships give it access to markets in 83 countries where 157,000 employees (60% of which are outside of France) serve 32 million clients (the bank has had a presence outside of France for the last century). Its five divisions focus mainly on supporting business related to the three largest ones (French Networks, International retail banking and Corporate and Investment banking). French Networks division is not the only one with dealings in France, others such as specialized financing and insurance also operate in France.

Société Générale has about €11 billion in writedowns and provisions since 2007. The value of its risky assets was up 1.8 billion euros in the 1st quarter of 2010 (€3 billion worth in Greece compared to 850 mil by Credit Agricole).^[2] Much of the turbulence experienced by the bank can be attributed specifically to crises in the US (impact was softened by $11.9 billion in bailouts receieved there), Greece (government defaulting on debt, over €70 billion of which is held by French banks) and $7.2 billion in fraud committed by a junior trader out of $73 billion worth of risky positions he took on the European Futures market (the loss was about the same as the bank's annual profits before the US subprime financial crisis ($7.67 billion in profits in 2006).^[3]

Contents 1 Company Overview 2 International 3 Business and Financial Metrics 4 Trends & Froces 4.1 Uncertainty in Greece, Italy, Spain and Portugal 4.2 Economic Recovery in Europe hampered by Bank Earnings Pressures 5 Competition 6 References

More recently Société Générale subsidiary ALD Automotive Group a vehicle leasing company that oversees the management of vehicle funding for nearly a million vehicles in 40 countries, was credited with supporting eco-driving solutions (sponsored a marathon in October 2010 described by UK prime minister as "important for the economy and the environment") through such things as iphone applications and car pooling solutions (ALD Sharing).^[4][5] Automobile leasing subsidiaries are part of the bank's Operational Vehicle Leasing and Fleet Management division. In the third quarter of 2010 subsidiary Credit Du Nord acquired 145 year old French bank La Société Marseillaise de Crédit for €872 million (Credit Du Nord has been part of Societe Generale since 1997 when it was acquired from Paribas bank). The move added 200,000 customers.^[6] Also in 2010 the bank played a pivotal role as advisor to Telefonica with regards to its purchase of 50% of Brasilcel. Division SG Equipment Finance is the leader in equipment financing in Europe^[7]

Company Overview

Société Générale has five main business segments (divisions/ subsidiaries). In order of size they are French Networks, Corporate and Investment Banking, International Retail Banking, Specialized Finance, SG Asset Management. Asset Management manages over half of the bank's total assets. In the following tables cost of risk is for for the quarter alone, OI is operating income, Net Inc is total net income, Risk is the cost of risk and NBI is net banking income. In order to reduce risk/expense, loan approval through consumer finance has shown geographical bias, the result of a new strategy aimed at raising the proportion of loans in resilient economies.

€ mil	NBI	Op Exp	Risk	OI	Min Int	Net Inc	Assets
2007[8]	4522	3425	na	1153 (3758)*	222	(145)	614,278
2008[8]	1544	3430	(1033)	(2919)	7	(1870)	649,420
2009[9]	6867	3877	(2324)	667	16	623	532,964
1hfy10[10]	3865	2226	10bp	1294 1669 gr	4	951	610,280
9M10	5799	3385	4bp	1946 2444 gr	7	1419
2010	7765					1730

2007 operating income without concealed trading activities (2007 operating income taking into account concealed trading activities).

Corporate and Investment banking ('10 revenue up 11.4% to €7.8 B or 29.4% of group total (down from 37% in 2009), C/I ratio fell to 60% which is lower than the corporate branches of citigroup (63%) and JP Morgan (66%), net income was 2.6X what it was the year before.^[7] 2009 revenue was up 1.6%, of SG total was up 345%, net income €2.49 billion higher than 2008 (over '08 loss of €1.87 billion) - Maintains a minor presence in most of the 45 countries it operates in (known as CIB in France and SocGen abroad). Operating income was €677 million, net income €410 million in net income in 2qfy10. Fixed income, currency, commodities, and financing and advisory services contributed 72% of NBI in the first half of 2010 (almost 80% in the second quarter).

• Societe Generale Asset Management (since 2003 includes SG AM Alternative Investment) - is a fund manager that provides private, corporate and institutional investors with management services related to debt, equity, pension and retirement. Key affiliated asset managers include Amundi (Europe's 3rd largest asset manager (600 billion euro), controlled by Credit Agricole), the TCW Group (US based with 109 billion in assets), Yamaichi in Japan.^[11] It also operates in Sweden and the UK. Total operating income (which includes private banking and other services) was €124 mil in the first half of 2010 (two thirds of that coming in the second quarter, Amundi contributed €21 mil). Data in table is for Asset Management, Private Banking and SGSS & Online Savings combined and is included in the section titled Trends and Forces.

French net €mil	NBI	Op Exp	Risk	OI	Min Int	Net Income	Assets
2007[8]	7058	4586	na	2163	58	1375	160,987
2008[8]	7179	4725	(494)	1960	50	1251	175,363
2009[9]	7253	4778	(968)	1507	37	971	180,143
1hfy10[10]	3823	2481	52 bp	894	6	591	187,240
9M10[12]	5736	3680	46bp*	1411	9	931
2010[7]	7800		50bp*			1233

French Networks ('10 net banking income (NBI up 4.5%) 30% of group total (down 3%), net income up 22.4% to €1.2 B, the loan:deposit ratio fell to a record low of 128%. In 2009 NBI 33.4% of SG total was up 1%, net income down 22.4%, 1hfy10 deposits were €120.8 bil (up 5.87% since December 2009) and loans €161.9 bil (up 2.3% since December 2009), €46.4 billion of the deposits were from regulated savings accounts) - The French consumer banking unit provides the French market with retail banking services and products through distribution networks managed by Societe Generale and Credit Du Nord. At the half in 2010 loans to individuals were €83.7 billion and the other €78.2 billion was to business customers and financial institutions. 2010 For French Networks the cost to income ratio (operating expenses/operating income) fell to 64.3%; deposits were 14.9% higher (to €131 B) while loans grew 5.7% (to €167 B).^{[7] [13]} 2qfy10 53,000 new accounts were made, net insurance inflow was 26.2% higher than in the second quarter of 2009 (€0.8 billion), NBI was 5.9% higher than in 2qfy09 while net income was 20.9% higher (€312 million). The cost to income ratio fell 1.8 basis points to 64% (2qfy10 compared to 2qfy09). Operating loan demand was 6.3% lower but loan demand was up 3.3%. Housing loand demand 5.9% higher yoy.

€ mil	NBI	Op Exp	Risk	Min Int	OI	Net Inc	Assets
2007[8]	2838	1526	na	938	17	600	115,949
2008[8]	3101	1795	(587)	719	18	459	118,936
2009[9]	3225	1818	(1224)	183	9	17	127,431
1hfy10[10]	1775	912	234 bp	8	253	162	133,530
9M10[12]	2663	1376	221bp	12	378	249
2010[7]						334	42,400(loans)

Specialized Financing and Insurance ('09 net banking income 14.8% of SG total was up 4%, net income down 96.3% in 2010 net income grew 1200% to €343 million total loans grew 1% to €42.4 B) - Provides fiduciary, private banking services, wealth management. Also has expertise related to asset restructuring, mergers, specialized financing in an advisory role. Affiliated companies include US securities company SG Barr Devlin (advises companies on mergers, asset restructuring, specialized financing) and British wealth management firm SG Hambros Bank Limited (fiduciary, private banking services, part of SG since 1998). In 2010 consumer finance had outstanding loans of €23.5 B (1.7% higher) contributing all growth experienced by the entire sp.finance division (equipment finance, which ranks #1 in Europe, held steady at €18.9 B). 841,000 vehicles were leased by the division in 2010, 6.5% more than 2009. Revenue from the insurance business unit grew 13.5% (life insurance premiums totalled €5.4 B)^[7]

International

€ mil	NBI	op exp	risk	Op Inc	Min Int	net income	Assets
2007[8]	3444	1986	na	1254	312	686	64,156
2008[8]	4990	2752	(500)	1738	474	618	88,037
2009[9]	4724	2681	(1298)	745	163	445	87,443
1hfy10[10]	2423	1357	192 bp	366,1066gr	66	239	90,190
9M10[12]	3673	2052	174bp	616,1621gr	112	388

• International Retail Banking ('09 net banking income 21.7% of SG total was up 5.3%, net income down 28%, 1hfy10 deposits were €65.2 billion (up 1.9% since December 2009) and loans €64.1 billion (up 1.16% since December 2009)) - Operates retail banks with about 3800 branches, outside of France but only in central, eastern Europe, the Mediterranean, Africa, Asia and French territories. Subsidiaries include BRD Societe Generale, Bulgaria's Expressbank, Slovenia's SKB Banka, and 60% of a piece of former Czech state bank Komerční banka, 54% of Greece's Geniki Bank (holds a lot of the banks poisonous assets), Morocco's Eqdom, SSB Bank in Ghana.

net income €mil[10]	1hfy10	2hfy09	1hfy09	(1hfy09,1hfy10)
CEE	186	201	183	1.64%
Russia	(46)	(114)	(83)	44.6%
Greece	(96)	(35)	(18)	(-)483.3%
Other	195	160	164	18.9%
Loans	64,100	60,400	61,400	4.4%
Deposits	65,200	64,000	64,600	0.93%

The most important markets for this division are Central and Eastern Europe (including Russia loans grew 2.4%, deposits 0.7% q to q), Russia, Mediterranean Basin (1hfy10 Mediterranean had 122,000 more customers than 1hfy09 up to 1.9 million, over 700 branches), Sub Sahara Africa, French Territories. International Retail Banking net income was 7.8% higher in 1hfy10 compared to 1hfy09 almost completely due to growth in other countries, 2qfy10 was 11.4% more than 1qfy10 due primarily to losses in Greece being cut in half (lost €31 million in the second quarter compared to €65 million in the second quarter).^[10] 2010 outstanding loans to customers were up to €5.2 billion in Russia up 20.9% over December 2010 and higher than any quarter since then, up to €7.7 billion CEE countries (steady with the previous year, doesn't include Greece & Czech Republic), and €19.1 billion for the Mediterranean Basin, Sub Saharan, Africa/French Territories (up 10.4% or €1.8 billion). Although net income from the Russian division was a loss of €15 million in 2010 the last quarter rebounded nicely into positive territory (€13 million) in stark contrast with the last quarter of the previous year (€58 million loss). Became the #1 private network in Russia. Czech Republic net income was €250 million up 28.2% while net income in the Mediterranean grew to €253 million and Africa €99 million.^[7]

Business and Financial Metrics

Key Financial Metrics (€ mil)	2005	2006	2007[8]	2008[9]	2009[9]	1HFY09[10]	1HFY10[10]	3QFY10[12]	2010[7]
Interest and similar Income	na	na	na	40,188	30,545	na	na	na	28,294
Net Banking Income	19,166	24,417	21,923	21,866	21,730	10,629	13,260	19,561	26,418
Gross Operating Income	7,000	8,700	6,700	6,338	5,964	2,745	5,194	7,456	9,873
Customer Deposits	222,500	267,400	270,700	282,514	300,054	na	na	323,800	329,000
Customer Loans	227,200	263,500	305,200	354,613	344,543	na	na	362,200	409,000
Cost of Risk	na	679	905	2,655	5,848	na	2,142	3,060	4,160
Net Income	4,402	5,221	947	2,773	1,108	31	2,147	3,043	3,917
Operating Margin incl all net losses	na	35.84%	8.22%	16.84%	0.53%	2.97%	23.02%	22.46%	14.83%|
Total Assets	835,100	956,800	1,071,800	1,130,003	1,023,701	na	1,133,684	1,150,000	1,132,000
ROE after tax	26,100	25,800	3,600	na	na	2.9%	10.9%	10.4%	9.8%

2010 - Shareholders equity totalled 50.975 billion euro, 8.8% higher than a year ago and 24.7% more than it was December 31, 2008. 91.07% of that being the group share (compared to 88.3% in 2008); equity instruments and associated reserves represented the largest portion at 49.74% with retained earnings at 43.20%. The corporate division had a net income of €1.73 billion up significantly from 2009 (2.6 times larger). Revenue from the insurance business unit grew 13.5% (life insurance premiums totalled €5.4 B)^[14][7]

3QFY10 cost to income ratio was up to 59.9% from 56.3% in the previous quarter reflecting a 7.4% increase in operating expenses (consistent with development plans). It was involved in an €872 million dollar acquisition of another French bank with 200,000 customers. Financing and advisory revenue was up 11.1% while structured financing was up 20% versus the third quarter of 2009 (the company's business with natural resources companies (a growing sector during this period a direct result of higher commodity prices and competition for resources among large corporations). In terms of Brokerage subsidiary Newedge increased its market share of the US market from 11.5% in the previous quarter to 12.7% in the third quarter of 2010 (that makes it the second largest broker in the United States). Total brokerage activity for the group recorded a 4.4% fall in expenses compared to the same quarter in 2009 (revenue for the first nine months was down 0.9%) helping to boost gross operating income (doubled in the third quarter to €15 million verses 3qfy09). The group's vehicle leasing and fleet management division (runs the ADL Automotive Group), oversaw the financing of 52,000 more vehicles in the third quarter bringing to the total to 823,000 which is a 3.4% increase over the last 12 months.Mid 2010 showed net banking income growth in France (6.3%) and abroad (2.3%) over 1HFY09 due to better commercial, retail banking activity. Cost to income ratio was down about 13% (60% vs 74%) mainly because expenditure was intentially kept down (same aggregate amount as in the year before). Cost of risk remained high in France (French Networks) and abroad (mainly related to activity in Greece, Romania counteracted by lower levels in Russia and the Czech Republic). Operating income was 9.7 times higher.2008 Oceania NBI was unusually low (€7 mil) due to financial trans (131 mil euro).

June 2010 total assets amount to €1,133,684,000 with €1,084,407 in liabilities. December 2010 total assets amount to €1,132,072 (up 10.6% on the year) with €1,082,079 in liabilities (up 10.67% on the year).

Trends & Froces

Uncertainty in Greece, Italy, Spain and Portugal

Through subsidiary Geniki Bank (losses every year since 2003) the banking group has exposure to the Greek government debt crisis (made worse by unprofitable units in the country). Geniki Bank has €4 billion of loans/advances but only €2.7 billion in customer deposts (2009) There isn't much optimism either with most other banks in Greece recording negative growth in loans and higher losses.^[2] French banks hold 40.8% of Greek debt held by Eurozone financial institutions and are the leader in claims on Italy and second in Spain (25.38%) and Portugal (19.71%) debt.^[15]

asset management € mil	NBI	op exp	risk	oper inc	min int	NI	assets
2007	3741	2708	na	992	39	652	94,595
2008	2813	2630	(53)	135	13	110	73,275
2009	2833	2464	(38)	331	20	227	69,406
1hfy10	1096	976	na	114,119gr	1	129	81,910
9M10	1664	1480	na	183	1	209

Economic Recovery in Europe hampered by Bank Earnings Pressures

Newly introduced taxes on financial institutions have caused banks to be more reluctant lenders to places with a vital role to play in Europe's economic recovery plan. Banks operating in Eastern Europe (including Russia, Poland, Hungary, Austria, Ukraine, Bosnia and partly Romania) are being especially hard hit. Those new regulations have reduced growth in loans attributed in part to stagnation. In terms of multinational institutions Unicredit Group has the most assets in that part of Europe while Societe Generale ranks fourth.^[16]

Competition

In 1999 Societe Generale and Banque Nationale de Paris (BNP) each battled to prevent the other from acquiring it (trade unions had a lot of influence on what ensued. Those representing Societe Generale made public their concerns about the effect BNP's economies of scale takeover approach would have on the banks, trade unions at BNP were less concerend).^[17] Both succeeded in preventing a takeover by the other but BNP ended up with the winning bid for Paribas. More recently in 2007 Societe Generale showed interest in taking over BNP Paribas (hired 2 US investment banks including Morgan Stanley to review it) and in 2008 when Societe Generale was defrauded more than $7 billion and questions were raised about whether it could survive PNB Paribas with support from the government of France was reported to have mulled a takeover bid for Societe Generale.^[18]

Largest European banks based in the Eurozone in the graph to the right.

Financial Data 1hfy10 unless ow stated	Societe Generale[19]	Unicredit Group[20][21]	ICBC[22][23]	Intesa Sanpaolo[24][25]	Credit Agricole[26]
Net Interest Income (€ mil)	30,545('09)	17,568('09)	15,896	10,486('09)	na
Revenue/NBI	13,260	13,299	30,267('09)	$50,710('09)[27]	10,293
Operating Income	2745	5482	16,171('09)	8235	1672
Customer Deposits	300,054('09)	235,896('09)	1,059,961	858,577	634.4

References

1. ↑ Societe Generale announces tripling of second quarter profits
2. ↑ ^{2.0 2.1} [1]
3. ↑ Goldman's share of AIG bailout money draws fire
4. ↑ FROM PM TO MPG (2010-10-08).
5. ↑ Societe Generale third quarter 2010 highlights
6. ↑ Completed acquisition of Société Marseillaise de Credit in Credit du Nord (2010-09-24).
7. ↑ ^{7.0 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8} Societe Generale 2010 Annual Results Presentation (2011-02-16).
8. ↑ ^{8.0 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8} Societe Generale 2007 Annual Report (2008-03-03).
9. ↑ ^{9.0 9.1 9.2 9.3 9.4 9.5} Societe Generale 2009 Annual Report Financial Information (2010- 03-04).
10. ↑ ^{10.0 10.1 10.2 10.3 10.4 10.5 10.6 10.7} Societe Generale 2010 Interim Report page 10 (2010).
11. ↑ Amundi steps up focus on Asian markets
12. ↑ ^{12.0 12.1 12.2 12.3} Societe Generale Third Quarter And First 9 Months Results (2010-11-03).
13. ↑ Societe Generale Second Quarter and First Half 2010 Results (2010-08-04).
14. ↑ Societe Generale 2010 year end Financial Results (2011).
15. ↑ Credit Agricole, SocGen Face Greek Risks (2010-04-28).
16. ↑ Bank stress puts E.Europe recovery at risk: study (2010-09-21).
17. ↑ BNP seeks to acquire Société Générale and Paribas
18. ↑ BNP weighing bid for crisis-hit Societe Generale (2008-01-31).
19. ↑ Societe Generale 2009 Annual Report
20. ↑ Unicredit Group Consolidated Results for the First Half of 2010
21. ↑ Unicredit Group 2009 Annual Results
22. ↑ ICBC 2009 Annual Results
23. ↑ Industrial and Commercial bank of China 2010 Interim Report
24. ↑ Intesa Sanpaolo 2009 Annual Report
25. ↑ Intesa Sanpaolo 2010 Interim Report
26. ↑ Credit Agricole 2010 Half Year Review
27. ↑ 2010 Global 2000