Understanding our third quarter 2019 results

Dear shareholder,

Once again this quarter, we have achieved results very much in line with our objectives and priorities.

We continued to strengthen our capital, with a substantial increase in the CET1 ratio to 12.5%. We have already provisioned a dividend per share of EUR 1.65 in respect of the first 9 months of 2019, corresponding to 75% of EUR 2.20. We are also making satisfactory progress in the adaptation of the businesses and our business model. The underlying profitability of our tangible equity (ROTE) stood at 8.1% for the first nine months of the year. Finally, Societe Generale has confirmed its position as a leading bank in combating climate change.

International Retail Banking & Financial Services continued to benefit from a profitable growth momentum in all regions and all businesses. French Retail Banking delivered robust commercial and financial performances and continued with its transformation process. Global Banking & Investor Solutions delivered resilient net income in an unfavourable environment, without yet benefiting from the positive effects of the ongoing restructuring which is ahead of its 2020 objectives.

Our operating expenses are lower, the result of rigorous cost control and the implementation of our
EUR 1.6 billion cost saving plan.

Our cost of risk remains low for all the businesses, reflecting the quality of the loan portfolio.

Our underlying Group net income totalled EUR 855 million in Q3 19 and EUR 3,183 million in 9M 19.

As a committed and responsible player, this quarter we pursued our actions to help combat global warming. Accordingly, we signed the Principles for Responsible Banking and joined the Collective Commitment on Climate. We have also undertaken to raise EUR 120 billion to finance the energy transition over the period 2019-2023. Our commitments and actions have been recognised by external bodies. RobecoSAM’s (*) annual sustainability ranking puts Societe Generale in 1st place worldwide on environmental topics and in 6th place in Europe across all ESG factors.

Initiated as from 2010, our digital transformation has gathered momentum over more than 4 years. Our digital maturity has been recognised for the sixth consecutive year with the eCAC40 Awards (**). The 2019 eCAC40 Awards ranked Societe Generale 4th among CAC 40 companies and 1st among banks having best managed the digital transition. These Awards highlight the consistency and depth of Societe Generale’s digital transformation. We want to continue to invent new banking services combining the best of the human relationship and digital technology in order to provide a better client service.

Responsibility and innovation constitute the cornerstones of the bank of the future which we want to continue to build with our shareholders, employees, clients and all our stakeholders.

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
 

(*) Every year, in conjunction with the S&P Dow Jones Indices, RobecoSAM publishes a ranking of the world's largest companies based on economic, environmental and social factors.
(**) The eCAC40 Awards winners are selected by the editorial team of Les Échos Executives and Gilles Babinet, Digital Champion of France at the European Commission, in partnership with Capgemini Invent, Datastax, Parnasse  et DLA Piper, after the review of a questionnaire analysed by a jury of digital transformation experts.

Q3 2019 results in brief

1. Q3 revenues (EUR 6 billion) were again driven by the dynamic growth in International Retail Banking & Financial Services and the robust performance of French Retail Banking.

International Retail Banking & Financial Services’ net banking income rose +3.7%* to EUR 2.1 billion in Q3 19.
International Retail Banking revenues totalled EUR 1.4 billion, up 4.8%* due to the excellent momentum in Africa, Mediterranean Basin and Overseas Territories (+10.0%*) and robust growth in Europe (+2.1%*) and Russia (+3.2%*). The Insurance business and financial services again posted an increase in revenues (+1.7%*), driven by the steady growth in Insurance, the ALD vehicle fleet and the margin in Equipment Finance. These businesses continue to enjoy a high level of profitability, with RONE of more than 18% in Q3 2019.

With net banking income of EUR 1.9 billion (+0.2% excluding PEL/CEL), French Retail Banking delivered another solid performance against the backdrop of a low interest rate environment and the transformation of the French networks.
The three brands (Societe Generale, Crédit du Nord and Boursorama) enjoyed a healthy commercial momentum during the quarter and strengthened their customer franchise. The number of mass affluent and wealthy clients continued to increase (+3% vs. Q3 18). Societe Generale also continued to roll out its specific facilities for the corporate sector and professionals. Boursorama consolidated its position as the leading online bank in France, with more than 2 million clients.

The commercial momentum remained buoyant in Q3 19, with a rise in average loan outstandings and average outstanding balance sheet deposits of respectively +5.7% and +4.4%.
Finally, although still adversely affected by the low interest rate environment, there was an improvement in net interest income (excluding PEL/CEL) with an increase of +2.9% in Q3 19 vs. Q3 18, underpinned by robust loan production and improved margins.

Global Banking & Investor Solutions’ revenues totalled EUR 2 billion, down -7.6% and -3.2% when adjusted for the effects of restructuring and the disposal of Private Banking activities in Belgium.
Global Banking & Investor Solutions’ ongoing adaptation plan is ahead of schedule. The target of reducing risk-weighted assets by 2020 has already been achieved.
As part of this plan, certain businesses have been closed or scaled back, which has primarily impacted the revenues of Global Markets and Investor Services. If these effects are excluded, the revenues of Global Markets and Investor Services were down -3.8%.
Structured Financing and Transaction Banking posted a robust performance, with revenues up +7%. The measures implemented to reduce risk-weighted assets have resulted in a decline in Corporate Banking revenues. Investment Banking revenues were lower than in Q3 18, which benefited from several major transactions. Accordingly, Financing & Advisory revenues were down -4.4% and -1.9%, excluding the impact of restructuring.

2. Underlying operating expenses are lower (-1.3%) at EUR 4.3 billion and the commercial cost of risk remains low (26 basis points in Q3 19).
The decline in operating expenses is particularly significant in Global Banking & Investor Solutions (-4.2%), reflecting the initial visible cost savings and resulting from the adaptation of the operational set-up and the departures recorded during the quarter.

3. In Q3 19, underlying Group net income totalled EUR 855 million.

(*) When adjusted for changes in Group structure and at constant exchange rates