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. 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). 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).
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). 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. 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
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|
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. 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).
|French net €mil||NBI||Op Exp||Risk||OI||Min Int||Net Income||Assets|
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).  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|
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)
|€ mil||NBI||op exp||risk||Op Inc||Min Int||net income||Assets|
|net income €mil||1hfy10||2hfy09||1hfy09||(1hfy09,1hfy10)|
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). 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.
|Key Financial Metrics (€ mil)||2005||2006||2007||2008||2009||1HFY09||1HFY10||3QFY10||2010|
|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|
|Cost of Risk||na||679||905||2,655||5,848||na||2,142||3,060||4,160|
|Operating Margin incl|
all net losses
|ROE after tax||26,100||25,800||3,600||na||na||2.9%||10.9%||10.4%||9.8%|
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).
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. 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.
|NBI||op exp||risk||oper inc||min int||NI||assets|
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. 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.
Largest European banks based in the Eurozone in the graph to the right.
|Financial Data 1hfy10 unless ow stated||Societe Generale||Unicredit Group||ICBC||Intesa Sanpaolo||Credit Agricole|
|Net Interest Income (€ mil)||30,545('09)||17,568('09)||15,896||10,486('09)||na|