(Bloomberg Opinion) -- The clock is ticking for Frederic Oudea. After more than 11 years running Societe Generale SA, the French bank is searching for an eventual successor. A new leader may bring a change of course, but undoing the lender’s strategic missteps will require some fancy footwork.
SocGen wants a replacement to succeed the 56-year-old Frenchman once his term expires in three years, Bloomberg News reported this week. That a search is underway shows SocGen knows it needs to look beyond the obvious contenders, Oudea’s deputies — an acknowledgment that succession planning hasn’t gone well.
And Oudea might be replaced before his term expires, according to Bloomberg. That the bank should be open to finding a new chief executive officer just months after reconfirming Oudea signals a lack of confidence in his restructuring plan, the bank’s biggest in years.
SocGen’s shares value it at less than half of its tangible book; that’s well below its big domestic peers. BNP Paribas SA and Credit Agricole SA trade at more than 77% and 87% of book, respectively. No wonder the board is concerned.
After failing to meet revenue, cost to income and profitability targets in his previous three-year plan, Oudea is cutting another 2,000 jobs, retreating from parts of fixed-income trading and selling some smaller foreign offshoots to improve capital. The moves are helping somewhat. The bank’s CET1 ratio — a measure of its ability to absorb potential losses — rose almost 50 basis points to 12.5% at the end of the third quarter, ahead of its own 2020 target.
The trouble is that SocGen is far too exposed to a cut-throat, low-margin French consumer banking business, and a volatile investment bank. The two units made up a combined 60% or so of group revenue in the third quarter, and 50% of operating income. Revenue was flat in the retail business and fell in investment banking. Income from equities plunged, a reminder that even the bank’s areas of traditional strength cannot be relied upon when markets turn against them.
While there were higher returns in the company’s insurance, car leasing and international businesses, SocGen’s exit from asset management has left it less diversified than peers. While the need to bolster capital didn’t give Oudea much choice but to sell Amundi SA, the strategy is hurting.
With capital buffers just about where they need to be, Oudea or a potential successor are somewhat constrained. Dipping back into fund management now might be costly.
Unless the outlook for interest rates improves, or there’s a sustained rebound in investment banking, it’s hard to see an alternative to finding more cuts, reducing risk and quitting non-core businesses. Making SocGen palatable to a potential buyer isn’t very aspirational but it’s better than standing still.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.
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