French bank Societe Generale is considering a sale of its Equipment Finance business as part of CEO Slawomir Krupa’s strategic revamp of the company, according to sources familiar with the matter. The bank views the business as non-core and has already sold part of its operations in 2020. However, a sale may not happen immediately due to challenging market conditions that affect the unit’s valuation. Krupa, who will present the bank’s new strategic plan on Monday, will aim to demonstrate to investors that he can boost returns in a difficult environment marked by slowing economic growth.
Societe Generale’s stock currently trades at about a third of its book value, which is similar to Deutsche Bank but half the multiple of its bigger French rival BNP Paribas and Italy’s UniCredit. These lower valuations are partly due to concerns about the bank’s exposure to more volatile income from investment banking. However, the shares have gained some momentum in recent months, and analysts have generally given a positive response to the change in leadership ahead of the new strategic plan.
Krupa’s comments in August hinted at a potential shrinkage or sale of assets as part of his revamp. While the CEO may not commit to major sales at the upcoming investor day, sources suggest that he may indicate a plan to prune non-core units over time. The Equipment Finance business, which provides equipment leasing and financing solutions, is one of the potential candidates for divestment. The business had 1,400 employees and around 24 billion euros of loans outstanding at the end of last year.
In addition to the Equipment Finance business, Societe Generale is also reportedly considering options for its asset custody division. Selling assets would generate cash for the bank at a time when the industry is facing additional requirements under global bank capital rules that will take effect in 2025.
One key challenge for Krupa is to improve the bank’s return on tangible equity, which is set at 10% for 2025. Analysts will closely observe how he plans to manage costs to achieve this goal. The French banking retail unit is also facing squeezed margins until 2024 due to lending rate caps and a government-imposed interest rate on savings accounts.
Overall, Societe Generale’s strategic revamp seeks to address the bank’s underperformance in the market. With a focus on boosting returns and setting achievable goals, Krupa aims to instill confidence in investors and improve the bank’s valuation and performance.
Disclaimer: This article is a summary of the original Reuters article.