Understanding our second quarter 2019 results

Dear shareholder,

This quarter provided further evidence of the successful execution of our strategic plan with our two short-term financial objectives: increasing our level of capital and improving our profitability. In particular, we continued to significantly strengthen our capital.

As a responsible banking player, we are extensively involved in the sustainable development of our economies. Accordingly, we have reaffirmed our coal withdrawal strategy by being one of the founding signatories of the Poseidon Principles (decarbonisation of maritime transport) and strengthening our coal sector policy. We are pursuing a strategy of total withdrawal from coal financing by 2030 for companies having assets in the EU and OECD and 2040 for the rest of the world.

An essential strategic issue, our quality of service is recognised by our customers. In a study published in June by Challenges magazine, Societe Generale has topped the rankings of corporate CFOs' favourite banks.

With regard to our Group’s financial results, there was further confirmation of the trends observed in the previous quarter in French Retail Banking and International Retail Banking & Financial Services. The International Retail Banking & Financial Services division continued to enjoy strong revenue growth and a high level of profitability. French Retail Banking continued to expand its core franchises with a solid performance against the backdrop of a low interest rate environment and the transformation of the French networks. Finally, only a few months after it was announced, Global Banking & Investor Solutions’ adaptation plan has entered the execution phase.  

Our sound results are also based on the controlled increase in our operating expenses and good risk management. The commercial cost of risk remains low and we saw a further decline in the rate of doubtful loans in Q2 19.

The underlying profitability of our tangible equity (ROTE) amounted to 9.7% in Q2 19 and our capital ratio (CET1) already reached the Group’s target of 12% at end-June. This improvement is the result of a set of measures presented at the time of our 2018 full-year results. In particular, we have pursued our refocusing programme, with the finalisation of the sale of our subsidiary in Poland, Eurobank. At the same time, we have maintained a rigorously disciplined approach in the use of our capital.

The execution of our strategic plan is well on track and I am confident of our ability to achieve our objectives in order to create value for our shareholders. Once again, I would like to thank you for your loyalty and the trust you have placed in our Group.

Frédéric Oudéa,
Chief Executive Officer.

Q2 2019 results in brief

1. Q2 19 revenues (EUR 6.3 billion) are characterised by buoyant activities in International Retail Banking & Financial Services and a solid performance by French Retail Banking
    

   Driven by the strong commercial momentum in all businesses and geographical regions, International Retail Banking & Financial Services’ net banking income rose by +5.7%* to EUR 2.1 billion.
   Quarter after quarter our International Retail Banking activities have continued to expand in all regions. In Q2 19, revenues grew +7%* with, in particular, an increase of +6.2%* in Europe, +13%* in Russia and +5.2%* in Africa and other regions. Insurance activities and Financial Services to Corporates continued to grow at a steady pace, with revenue increases of respectively +3.6%* and +2.6%*.

   With net banking income of EUR 2.0 billion (+2.1% excluding PEL/CEL), French Retail Banking continued to deliver a solid performance against the backdrop of a still low interest rate environment and the ongoing transformation of the French networks.
   The three brands, Societe Generale, Crédit du Nord and Boursorama, pursued their commercial expansion. Boursorama gained 137,000 new clients in Q2 19. At the same time, the Societe Generale and Crédit du Nord networks strengthened their franchises on the Group’s target customers. Accordingly, the number of mass affluent and wealthy clients continued to grow (+2% vs. Q2 18). Societe Generale continued to roll out its specific facilities for the corporate sector and professionals. At end-June 2019, Societe Generale had 13 regional business centres, 110 “Pro Corners” (espaces pro) in branches and 10 dedicated “Pro Corners”.
   The commercial momentum was robust in Q2 19, with an increase in average loan outstandings and balance sheet deposits of respectively +4.7% and +3.6%. Finally, although still adversely affected by the low interest rate environment, there was an improvement in net interest income, which rose by +1.7% vs. Q2 18 and +2.8% vs. Q1 19.
   
   Global Banking & Investor Solutions’ revenues totalled EUR 2.3 billion, down -6.1%.
   Global Markets & Investor Services’ revenues were lower (-9.2%) in Q2 19, due to still challenging market conditions. Financing & Advisory’s revenues were higher (+2.6%), driven by the good performance of Financing activities. Investment banking activities remained relatively sluggish in Europe over the period.
   Only a few months after it was announced, Global Banking & Investor Solutions’ adaptation plan has entered the execution phase, with the adjustment of the portfolio of activities, a reduction in costs (**) and risk-weighted assets.

1. Operating expenses are contained, down -3% at EUR 4.3 billion. The commercial cost of risk remains low (25 basis points).

   We are also continuing with the implementation of our cost saving plan (EUR 1.6 billion by 2020). We have already achieved savings of EUR 0.6 billion.

1. In Q2 19, reported Group net income totalled EUR 1 billion and underlying Group net income EUR 1.2 billion. The Group’s return on equity (ROTE) stood at 8.3% and underlying ROTE at 9.7%.

(*) When adjusted for changes in Group structure and at constant exchange rates
(**) Costs, excluding the restructuring provision and EMC integration costs, were down -3.5% in Q2 19 vs. Q2 18.