Societe generale: Why UBS thinks French banks can turn things around on the stock market

(BFM Bourse) – French establishments listed in Paris are having a timid start to 2024 on the stock market. But the Swiss bank believes that improving activity in retail banking may give them the opportunity to regain ground.

The 2023 results season proved painful on the markets for French banks. The three large groups listed on the CAC 40 lost ground on the stock market during the session following the publication of their accounts. If Société Générale limited the damage (-0.97%), Crédit Agricole SA (-5.2%) and BNP Paribas (-9.2%) suffered, the market punishing revenues lower than expectations.

So much so that since the start of the year, the three French banks have underperformed the rise in the CAC 40 (+8% since January 1): BNP Paribas is stable (+0.5%), Société Générale takes 2, 9% while Crédit Agricole SA gains 4.5%


In a recent note spotted by L'Agefi, UBS nevertheless sees reasons to be, if not optimistic, at least more constructive about French banks. The Swiss bank is encouraging investors to take an interest in retail banking in France to change the trend.

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Booklet A hurt

The Swiss establishment recalls that this segment has suffered due to the particular structure of credit in France – with fixed rate loans which mean that French banks do not immediately benefit from rate increases in their loan stocks, new credits at high rates taking time to replace the old ones – but also savings.

“France has an exceptionally high proportion of price-regulated banking products – 934 billion euros of savings, mainly driven by Livret A – meaning French deposits were the most expensive in Europe when rates were low and their cost increased as quickly as the European average when rates and inflation increased in 2022-2023”, explains UBS.

The average cost of deposits for French banks increased from 0.54% in May 2022 to 1.75% in November 2023, according to UBS data. In the eurozone as a whole, these costs stood at 0.18% in May 2022 and remained contained at just 1.15% in November.

This unfavorable wind on deposits was combined with rates on loans which increased less than for other countries in the euro zone. Between May 2022 and November 2023, with the increase in the key rates of the major central banks, the average rate of outstanding loans of banks in the euro zone increased from 1.9% to 3.45%, compared to a movement ranging from 1. 59% to 2.66% for French banks.

To explain this trend, in addition to the structure of fixed loan rates for loans, UBS cites French regulation, with usury rates (the maximum legal rate for each type of loan) which slowed down the rates at which loans could rise. In France.

Ultimately, loan rates have not risen as fast as the rise in deposit costs. This has created a negative jaws effect for retail banking in France. According to a VA consensus cited by UBS, net interest income (i.e. to simplify the money made by banks on a loan) fell on average by 5% in France in 2024, when they increased by 62% in Ireland , 43% in Italy, 20% in Spain and even 9% in Germany.

Towards a rebound in retail banking

However, UBS considers that the market is too pessimistic about French banks and underestimates the recovery potential.

“There is a time and a place for exposure to retail banking in France. We believe that this time has come,” judges the Swiss group, which considers that net interest margins have reached the lowest point of wave in the third quarter of 2023 in France.

The bank believes that the negative jaws effect faced by French establishments in retail banking will be reduced. Due, in particular, to the rise of new credits at higher rates in loan stocks, and, later, to a drop in the costs of deposits linked to regulated savings. The establishment also believes that the more favorable environment on rates should allow an increase in loan volumes, with the release of “pent-up demand” (unsatisfied demand) for housing purchases and for refinancing. banking.

As a result, the net interest income of banks in France is expected to rebound this year. The Visible Alpha consensus cited by UBS expects an increase of 9% in 2024, while all other European countries except Spain (+4%) would see a decline.

The Swiss bank, for its part, anticipates impressive figures. It forecasts an increase in net interest income in France of 6% per year on average over the period 2023-2026 for BNP Paribas, 7% for Crédit Agricole SA and 17% for Société Générale. It is also counting, over the same period, on an improvement in the gross operating income of Crédit Agricole SA in retail banking in France of 10% per year on average, a figure which rises to 14% at BNP Paribas and even to 50% at Société Générale.

Societe Generale to favor?

“We believe it is legitimate to expect an improvement in net interest income trends in France in the three large listed companies,” explains UBS. The Swiss bank, however, favors Société Générale, which it recommends for purchase, while it is “neutral” on BNP Paribas and Crédit Agricole SA. This is because the La Défense bank is the most exposed of the three to retail banking in France, which represents 32% of its total revenues, according to UBS, as well as 20% of its gross operating profit.

The red and black establishment will also benefit from the benefits of the merger of its Crédit du Nord and Société Générale networks, from the improvement in the profitability of BoursoBank and could carry out potential disposals, lists UBS.

In addition, Société Générale will be much less penalized by the costly impact of the hedges it had taken to protect itself against potential rate cuts on its net interest margin in retail banking (while rates have on the contrary climb). This coverage amounted to 1.6 billion euros in 2023, according to UBS.

Société Générale is also the least expensive on the stock market of the three French banks. The stock trades at 3.9 times expected profits in 2025, notes the Swiss establishment, compared to 6.7 times for BNP and 6.9 times for Crédit Agricole SA.

Classes were stopped on Friday afternoon

Julien Marion – ©2024 BFM Bourse

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