SOCIETE GENERALE SOCIETE GENERALE Goldman Sachs conference, Rome, - - PowerPoint PPT Presentation

Didier Hauguel

Head of Global Risk Management

SOCIETE GENERALE

Goldman Sachs conference, Rome, June 20th 2003 Workshop "Is this credit cycle any different ?"

SOCIETE GENERALE

Goldman Sachs conference, Rome, June 20th 2003 Workshop "Is this credit cycle any different ?"

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GS conference, Rome, June 20th 2003

This credit cycle is somewhat different This credit cycle is somewhat different

!

Geopolitical risks

!

World economy: deflation risk vs. accommodative policy mixes

!

Corporate governance new challenges

!

Long term trend of increasing recourse by corporates to disintermediated financing

!

Improved risk management techniques

Societe Generale group's strategic undertakings have reduced its risk sensitivity across the cycle

PRELIMINARY COMMENTS PRELIMINARY COMMENTS

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GS conference, Rome, June 20th 2003

Evolution of Group profile over time Evolution of Group profile over time

!

Generating higher RoCWA(1) after provisions over the long term

" Extracting more income per CWA " Improving risk management " Leads to a structurally higher RoCWA

!

Group-wide drivers

" Increasingly diversified business mix " Shift in geographical mix of assets

!

Business-lines drivers

" A productive and competitive Corporate & Investment Bank platform " Strong growth in domestic mortgages " Tight risk management in foreign retail

SOCIETE GENERALE GROUP SOCIETE GENERALE GROUP

(1) Return on Cooke-Weighted Assets: ratio of Operating Income / Cooke-Weighted assets

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GS conference, Rome, June 20th 2003

Extracting more income per CWA, and improving Extracting more income per CWA, and improving risk management risk management

SOCIETE GENERALE GROUP SOCIETE GENERALE GROUP

Over the last 12 years:

! NBI: avg + 9% p.a. ! CWA: avg + 5% p.a. ! GOI/CWA increased over period by

1.7 times (from 1.3% in 1990 to 2.2% in 2002)

! Weighted average cost of risk:

59 bp over period

# Ratio of "Operating Income /

Cooke-Weighted assets" more than doubled, from approx. 0.6% in 91-98 to approx. 1.5% in 99-02

Long term evolution of NBI/CWA, GOI/CWA, Long term evolution of NBI/CWA, GOI/CWA, cost of risk, and Operating Income/CWA cost of risk, and Operating Income/CWA

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 1990 1992 1994 1996 1998 2000 2002 Cost of risk GOI/CWA NBI/CWA Operating income /CWA

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GS conference, Rome, June 20th 2003

Increasingly diversified business mix Increasingly diversified business mix

! Strong cash flow generation,

selective usage of capital in CIB

! Rise in capital allocated to Retail

and AM&PB:

" Internal growth in French and Foreign Retail " Acquisitions: EUR 3.3bn in 2001-2002 in Foreign Retail, AM&PB and SFS

! Higher dispersion of risks

Capital allocated to businesses Capital allocated to businesses

in EUR in EUR bn bn, period , period avg avg, on the basis of 6% of CWA + non , on the basis of 6% of CWA + non-

• amortised goodwill, excl minority interests

amortised goodwill, excl minority interests

SOCIETE GENERALE GROUP SOCIETE GENERALE GROUP

Corporate & Investment Banking Specialised Financial Services Retail in France 1998 1999 2000 2001 2002

9.5 9.4 11.0 9.3

AM & PB

12.4

Retail outside France

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GS conference, Rome, June 20th 2003

Shift in geographical mix of assets Shift in geographical mix of assets

SOCIETE GENERALE GROUP SOCIETE GENERALE GROUP

1998 1998-

• 2002 shift in geographical asset classes, in percentage points o

2002 shift in geographical asset classes, in percentage points of balance sheet f balance sheet

• 7 pts
• 6 pts

+0 pt +1 pts +2 pts +3 pts +7 pts

CIBD France CIBD North America CIBD Asia, Japan, Australia French retail: businesses Western Europe ex- France French retail: individuals

• Cent. & East.

Europe + Medit & Afr

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GS conference, Rome, June 20th 2003

CORPORATE & INVESTMENT BANKING CORPORATE & INVESTMENT BANKING

CIB Cooke Weighted Assets in EUR CIB Cooke Weighted Assets in EUR bn bn

Selective usage of balance sheet in CIB Selective usage of balance sheet in CIB

! Over 1998-2002 period, NBI: +35%

with CWAs -40%

! Selective growth in CWAs from 2002

• nwards

! Core strategic focus: Euro Capital

Markets, Derivatives, Structured Finance

! 2002 revenue breakdown: 65%

Europe, 25% US, 10% Asia

! Dynamic credit risk management

and pro-active portfolio management

Equity & Advisory Debt finance (incl. Structured Finance) Commercial Banking

11 6 13 11 8 7 49 38 41 41 37 36 41 38 22 19 17 20 101 76 82 63 63 71

mar- 98 mar- 03 mar- 02 mar- 01 mar- 00 mar- 99

• 14% p.a
• 6% p.a
• 8% p.a

Change over 5 years

• 9% p.a
• 11% p.a

+0%

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GS conference, Rome, June 20th 2003

NBI / CWA ratio of euro NBI / CWA ratio of euro-

• zone

zone CIBs CIBs in 2002 in 2002

A productive and competitive CIB platform A productive and competitive CIB platform

! SG: strong productivity of

allocated capital

! 2/3rds of 2002 revenues generated

with clients

! Objective to increase cross-

selling by 25% by 2005:

" Corporates: from 5 products on average to over 6 " Financial institutions: from 3.6 to 4.5

CORPORATE & INVESTMENT BANKING CORPORATE & INVESTMENT BANKING

8% 8% 8% 4% 4% 4% 4%

Deutsche Bank ABN Amro

SG

Commerz BNPP Credit Lyonnais Credit Agricole

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GS conference, Rome, June 20th 2003

SG consistently ranking amongst the most SG consistently ranking amongst the most profitable continental European CIB platforms profitable continental European CIB platforms

CORPORATE & INVESTMENT BANKING CORPORATE & INVESTMENT BANKING

(1) Calculated using pre-tax net income and allocated equity

CIBD CIBD pre pre-

• tax

tax ROE ROE(1)

(1)

• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

2000 2001 2002 Q1 03

SG

CIB with highest ROE Average ROE of CIBs CIB with lowest ROE

SG

CIB with highest ROE Average ROE of CIBs CIB with lowest ROE

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GS conference, Rome, June 20th 2003

Strong growth in domestic mortgages Strong growth in domestic mortgages

FRENCH NETWORKS FRENCH NETWORKS

!

Consequence of strong competitive positions:

" Young, urban and growing customer base (1) " Largest non mutual retail bank in France

(1)- From 6.8m customers in 1998 to 8.1m in 2002

• 16% household deposit market share in the Paris metropolitan area (11m inhabitants with GDP per capita 1/3 above French and EU-15 average)

21 33 1998 Q1 03

Domestic mortgage average Domestic mortgage average

• utstandings
• utstandings, in EUR

, in EUR bn bn

+11% pa

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GS conference, Rome, June 20th 2003

Characteristics of the French mortgage market Characteristics of the French mortgage market

FRENCH NETWORKS FRENCH NETWORKS

!

Low cost of risk: 1 to 3 bp across the cycle

!

High down payments

!

Low loan-to-value

!

Fixed rates

!

Modest evolution in French real housing prices relative to other countries

60 80 100 120 140 160

Japan Source: Bank for International Settlements

Real Real Housing Prices Housing Prices in in selected selected countries countries

France USA UK Germany

Base 100 in 1992

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

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GS conference, Rome, June 20th 2003

1% 14% 23% 9% 9% 44%

Diversification of country risk Diversification of country risk

RETAIL BANKING OUTSIDE FRANCE RETAIL BANKING OUTSIDE FRANCE

Breakdown of foreign retail revenues Breakdown of foreign retail revenues by geographic region in Q1 by geographic region in Q1-

• 03

03

Mediterranean Basin

French Overseas Departments & Territories

Other 2004 future EU members: Czech Republic,Slovenia Romania, Bulgaria Africa

! Czech Republic, Slovenia to

join EU in May 2004

! Full control of management,

• rganisation, IT, marketing and

risk management of subsidiaries

! Close monitoring of

country risk

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GS conference, Rome, June 20th 2003

Conclusion Conclusion

In Q1-2003:

! Drop in provisioning for

identified risks

! 68 bp cost of risk including

EUR 70m allocation to general credit risk reserve

! 2003 Group cost of risk

guidance maintained

SOCIETE GENERALE GROUP SOCIETE GENERALE GROUP

Quarterly net allocation to provisions, in EUR m Quarterly net allocation to provisions, in EUR m

Corporate Banking Retail Banking

Q1 02 Q2 02 Q3 02 Q4 02 Q1 03

330 286 287 325 403