SOCIÉTÉ GÉNÉRALE Société Générale SA - General Meeting of Shareholders of 22 May2024
Responses to written questions from shareholders.
The text of the following questions has been summarised (without changing the meaning) when it is unnecessary to quote them in full to ensure their proper understanding.
3. These off-balance sheet commitments account for more than 10 times the total consolidated balance sheet: Were the models developed by your services to calculate the "fair value" of these commitments validated by the ACPR (French
Prudential Supervisory and Resolution Authority) or by your Statutory Auditors? |
4. In their comments on pages 624 and 625, the Statutory Auditors considered the off-balance sheet commitments question to be a "key audit matter". An error, fraud or omission in one out of a thousand would be equivalent to a nominal amount of EUR 17 billion (give or take), with a considerable impact on the bank's capital. In these conditions, how many contracts did your Statutory Auditors perform audit procedures on (amount, compliance with covenants, counterparty quality, etc.)
Questions from Mr. Marcel Chassagnard, individual shareholder |
placing this money elsewhere and paying further transaction costs? | |
hearing all small shareholders whether they are clients (via web or branch) or not? | |
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operational ethics, bearing in mind that impeccable ethical behaviour is required worldwide? | |
Question from Mr. Romain Feraud, individual shareholder (question sent by email on 14 May 2024): | 11 |
From what date exactly will it be possible to obtain monthly, quarterly and annual management reports of this FCPE | |
(employee savings fund), specifying, as for all French UCITS, the details of the portfolio and all transactions carried out over | |
the period under review? | 11 |
Questions from Mr. Jean-Michel Lagneau, individual shareholder | 12 |
For at least a year, SGSS has refused to settle by cheque the dividends decided by the various client companies of SGSS. | |
The reason indicated = the regulation dated 01/01/2007 | 12 |
1. What about the period from 01/01/07 to the end of 2022? Is SGSS acting illegally? Why does it refuse to produce the text | |
of the mentioned regulation for the shareholders concerned? | 12 |
2. Have SGSS client companies been informed? Did they benefit from a reduction in invoicing? At least one other | |
establishment continues to make settlements by cheque | 12 |
3. Is SGSS's position strictly compliant with banking laws and practices? | 12 |
4. This is a time of cost cutting in all areas. Why send the URD by registered post? | 12 |
Question from the Association of shareholders who are employees or former employees of the Societe | |
Generale Group (ASSACT SG), a non-profit association | 15 |
The African subsidiaries and SGEF which were recently sold had synergies in place with other Group activities (e.g. | |
investment and retail banking networks in France) | 15 |
What were the criteria that influenced these recent decisions and what is the timeline for completing the refocus of the | |
activities? | 15 |
Question from Mr. Philippe de Jong, individual shareholder | 13 |
Will the shareholders be consulted in the event of a sale of SG to a foreign player? My question stems from recent | |
statements by the President of the Republic carried in the press which suggest that an acquisition of SG by its Spanish rival | |
Santander could be envisaged. I imagine that the President would not make such a statement without having informed | |
the Board one way or another. It is very plausible because SG would be a much easier prey than BNP or Crédit Agricole, | |
given that its share is known to be undervalued in relation to the assets on the balance sheet. Based on this assumption, it | |
does not seem right to me that the shareholders would not be consulted for their view of such an acquisition at the AGM. | |
Hence my question on the views of the Board in this regard | 13 |
Questions from Reclaim Finance, a non-profit association | 15 |
1. Is Societe Generale ready to make a commitment to follow BNP Paribas on this path by ceasing to issue "non-targeted"
bonds of companies that participate in the expansion of fossil fuel-based projects? | 16 |
2. If so, we congratulate you, but will you also halt general loans and other services, such as sustainability linked loans (SLL) and revolving credit facilities (RCF), that may support the expansion of fossil fuel-based projects, in disregard of your
commitments? | 16 |
3. Do you plan to publish such a ratio and commit to reaching a ratio of 6:1 by 2030, in accordance with the carbon neutral | |
trajectory promoted by the International Energy Agency? | 16 |
Questions from Mr. François Plassais, individual shareholder | 18 |
1. Are SG's disarray, its troubles and its lack of organisation more profound and otherwise resistant given the disillusion
over the last quarterly results and the gap observed in relation to your main French competitors? | 18 |
2. After a long period of various reorganisations and disposals, do you still have the means to fulfil your ambitions of ensuring solid growth and profitability for the survival of the Group and to sustain comparison with your main rival, which
has left you so far behind? | 18 |
3. Having overhauled the different activities, what sources of profit will you develop to ensure a more promising result | |
apart from the latest directions which have already disappointed and which do not seem sufficient for a recovery? | 18 |
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4. Are you not getting conspicuously close to a hostile public takeover given the Group's weak valuation and the significant | |
deterioration in its profitability? | 18 |
Questions from Mr. Paul Strock, individual shareholder | 19 |
We believe that the buyback by the company of its own shares - outside of the employee savings plans - has a detrimental | |
effect for the shareholders in the long term | 19 |
Questions from Mr. Corentin Mignien, individual shareholder | 20 |
1. Dear members of the Board of Directors, how do you explain that Societe Generale is one of the rare stocks in the | |
European banking sector to be trading at <0.4x its tangible book value (TBV)? | 20 |
2. Moreover, our share is trading at a discount of 40-50% on the sector average. You implemented a cost cutting strategy affecting all levels which did not result in a rise in the share price. What other strategy(ies) are you implementing in the
interests of the shareholders? | 20 |
3. I would also like to take this opportunity to ask you how you justify the increase in your revenue in relation to the average | |
increase in employee wages and in the share price/dividends? | 20 |
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Question from Mr. Philippe De Jong, individual shareholder (question sent by email on 24 April 2024):
2023 net banking income down 7.5%, ROTE under 5% (versus more than double that in 2021), net return on the share down 4.4%, an annual increase in the share price of just 2.3% despite share buybacks: are these not all factors that would cause doubt among SG shareholders as to the effectiveness of past strategic directions and damage their confidence in those about to be adopted?
Response of the Board of Directors:
As announced during the presentation of the 2022 annual results, 2023 was a transition year financially. There were significant changes in economic factors that affected our activities, in particular the change in the interest rate regime and the economic slowdown, versus the level of growth observed in recent months.
Due to the specific features of the French retail banking market (limited capacity to pass on interest rate hikes to real estate loans and consumer credit due to the usury rate, real estate loans on fixed rates over long maturities, the significant weight of regulated savings among households, the remuneration terms of which are largely linked to inflation and interest rates), the rapid and significant rise in interest rates observed from 2022 had a particularly penalising effect on the net interest income of the French Retail Banking activities, whose revenue levels reached a low in the third quarter of 2023 before gradually rising since then.
Moreover, the particularly favourable economic conditions that the vehicle leasing activities and the capital markets activities had benefited from after the Covid period gradually normalised in 2023, after the highs observed in 2022.
We also adopted new strategic directions in September 2023 to make our Group more solid, more efficient and more profitable and to create the conditions for a sustainable performance that can bring about a structural reduction in the discount on the share price in relation to the Group's intrinsic value, as represented by its net tangible asset value.
A progressive strategic structural approach has therefore been adopted to strengthen our Group. Financially, our operating performance improved in the first quarter of 2024, underpinned by the results of the Global Banking and Investor Solutions division and solid revenue from International Retail Banking activities, while French Retail Banking began to show an improvement, with an increase in net interest income in relation to the previous quarter, and the margins of Ayvens began to stabilise amid a normalisation of second-hand vehicle prices. Costs are evolving in line with our trajectory.
In relation to strategic initiatives, we officially launched the Bernstein joint venture, creating a new leader in equity research and cash equities. We continue to simplify our business model, while strengthening the Group's capital, and in recent weeks have announced plans to sell Societe Generale Equipment Finance and subsidiaries in Morocco. Following these initial steps, we will continue to implement our roadmap over the coming months in line with our trajectory. We thank you for the trust you have shown in our Group and for your long-term commitment.
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Questions from Mr. Pierre-YvesGrimaud, individual shareholder (questions sent by email on 1 May 2024):
Lyxor and the Private Banking business were part of CIB until 2021 and turned in a very poor cost to income ratio above 80% (94% in 2018 and 2019, 90% in 2020, 84% in 2021).
In 2022, Lyxor was sold to Amundi and the Private Banking arm was housed with the France network.
What was the cost to income ratio of Private Banking in 2022 and 2023?
What was the cost to income ratio of the France network (excluding Private Banking) in 2022 and 2023?
Response of the Board of Directors:
The French Retail Banking arm and the Private Banking and Insurance activities are now housed together under the same structure in order to continue strengthening synergies between these different businesses both in terms of product offerings and client relations, thus facilitating a more integrated client pathway.
A significant proportion of the operating expenses, in particular those related to the corporate centre functions but also those related to certain IT expenditure (systems and infrastructures), are shared at the level of this structure. For structural reasons, therefore, it is not possible to give an off- the-cuff cost to income ratio of the Private Banking activities. We can say that given the respective size of the French Retail Banking activities and the Private Banking activities, the impact of the Private Banking cost to income ratio on the entire structure's cost to income ratio remains limited, even taking into account the growth in revenue observed in the Private Banking arm since 2022. The Private Banking activities weighed slightly on the cost to income ratio in 2022 and improved it slightly in 2023.
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Questions from Mr. Pierre-YvesGrimaud, individual shareholder (questions sent by email on 2 May 2024):
The 2024 Universal Registration Document states that:
The notional amount of commitments related to trading derivatives totals EUR 16,307 billion (page 470 of the Document).
The notional amount related to hedging derivatives is EUR 677 billion (page 474). This equates to almost EUR 17,000 billion in total commitments.
NB: During the Q&A session at the AGM on 23 May 2023 you stated that you had 23,000 contracts and 13,000 counterparties for a total of EUR 15,800 billion in commitments at 31 December 2022.
- How many contracts were there on 31 December 2023?
- And with how many counterparties?
- These off-balance sheet commitments account for more than 10 times the total consolidated balance sheet: Were the models developed by your services to calculate the "fair value" of these commitments validated by the ACPR (French Prudential Supervisory and Resolution Authority) or by your Statutory Auditors?
- In their comments on pages 624 and 625, the Statutory Auditors considered the off-balance sheet commitments question to be a "key audit matter". An error, fraud or omission in one out of a thousand would be equivalent to a nominal amount of EUR 17 billion (give or take), with a considerable impact on the bank's capital. In these conditions, how many contracts did your
Statutory Auditors perform audit procedures on (amount, compliance with covenants, counterparty quality, etc.) in order to certify as to the accuracy of the accounts?
Response of the Board of Directors:
By way of introduction, as we have already pointed out, the notional amounts of derivative financial instruments correspond to the nominal amounts of the derivatives' underlying instruments (e.g., the value of underlying shares for an equity option, the nominal amount of the theoretical loan and borrowing for an interest-rate swap, etc.). Together with other parameters, they serve as the basis for the calculation of the fair value of the derivatives. However, their gross value does not reflect the financial risk to which the Group is exposed. Accordingly:
- The notional commitments presented in the Universal Registration Document correspond to the total of the gross amounts of the commitments on all the underlyings on which the bank took positions, and do not take into account any netting between the contracts that mutually hedge each other, even when they are concluded as part of overall netting agreements. The management of risks arising from exposures to derivatives is mainly performed by introducing new contracts in the opposite direction (to reduce the overall net exposure), rather than terminating existing contracts early. As such, the total exposure measured as the total of gross exposures does not reflect the risk that the bank would run in the end.
- The off-balance sheet commitments do not take into account the margin call and deposit guarantee mechanisms, the purpose of which are to limit the exposure and the risks.
- The fair value of derivative instruments is different from the amount of notional commitments. Hence, the fair value of a derivative instrument is generally zero at initiation, even if the notional amount can be very high. Likewise, the fair value of a conditional derivative instrument only corresponds at initiation to the premium received or paid (recognised on the balance sheet), which is generally only a small percentage of the notional amount.
For example, a derivative instrument perfectly hedged by another derivative instrument, with daily margin calls securing their settlement, whose net fair value corresponds to the Bank's intermediation margin, resulted
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in the presentation of cumulative notional amounts of the two instruments, in the table entitled "Commitments (notional amounts)" in the 2024 Universal Registration Document.
At end-December 2023, there were approximately 24,000 contracts, while the number of counterparties stood at around 13,000 at year-end 2023. As mentioned previously, the high number can be explained by the fact that the contracts are mainly not "terminated" or cancelled, but are rather cancelled or reduced by the introduction of a new contract with an opposite position. These contracts are subject to numerous controls, in keeping with best practices and regulatory standards. Among these controls are counterparty reconciliations, which, in the majority of cases, are automated. Notably, there are also daily margin call mechanisms to safeguard changes in value of these instruments by enabling an immediate payment.
The accounts are certified by the Statutory Auditors. Details of their audit approach on the key audit matter concerning the valuation of financial instruments appears in their Statutory Auditors' report inserted in the Universal Registration Document on pages 621 to 630 (more specifically on page 625) for the consolidated financial statements, and on pages 698 to 704 (more specifically on page 700) for the annual financial statements.
The comments made therein relate to the audit of the consolidated financial statements in their entirety. The Statutory Auditors have no comment to make on any individual aspect of these consolidated financial statements.
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Questions from Mr. Marcel Chassagnard, individual shareholder (questions sent by email on 3 May 2024):
- As the company is having difficulty maintaining its dividend, why do you not propose reinvestment in new shares, as others have effectively done, to gain the loyalty of the small shareholder while at the same time discouraging them from placing this money elsewhere and paying further transaction costs?
- Are you going announce at the AGM the creation of an individual shareholders consultative committee with the goal of hearing all small shareholders whether they are clients (via web or branch) or not?
- Why are double voting rights not offered after at least two years as a shareholder, as successfully offered by other companies, in order to gain shareholder loyalty?
Response of the Board of Directors:
During the presentation of the strategic roadmap on 18 September 2023, the Group gave a precise description of the distribution policy until 2026. It is based on a payout rate of between 40% and 50% of reported net profit, with an even distribution between dividends in cash and share buybacks from 2024.
A payout amount in line with this policy has been proposed for the 2023 financial year, with a higher proportion of dividends being paid in cash in order to maintain a minimum return in the form of cash. This payout rate is 40%, giving a total distribution for the 2023 financial year of around EUR 1 billion, equivalent to EUR 1.25 per share. It will involve a dividend in cash of EUR 0.9 per share, which was submitted for approval to the Combined General Meeting of 22 May 2024, and around EUR 0.35 per share (i.e. around EUR 280 million) in the form of share buybacks which will be carried out after the AGM.
Concerning the payment of the dividend in new shares, a transaction of this type would increase the amount of shareholders' equity but would reduce future earnings per share. To avoid dilution effects caused by the distribution of new shares, the Group therefore favours the distribution of a dividend in cash or in the form of a share buyback, followed by a cancellation of these shares. Unlike the payment of a dividend in new shares, this method serves to increase earnings per share for future years.
Societe Generale's Shareholders Consultative Committee was created more than 30 years ago to promote strong, comprehensive and regular dialogue. It comprises 12 individual shareholders who are appointed for three years, with renewal of the members on a periodic basis. Click on the link below for further information: Shareholders Consultative Committee - Societe Generale (societegenerale.com).Each year, during the discussions at the Group AGM, the first question is asked by a member of the Shareholders Consultative Committee.
As per your wish, the shareholders of Societe Generale have double voting rights after two years as a registered shareholder.
This right has existed since 1993 and is governed by Article 14 of Societe Generale's By-laws. You can consult this document on the Group's website.
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Questions from Ms. Annie Evrenian, individual shareholder (questions sent by email on 10 May 2024):
- As an international bank operating in the United States and with plans for further expansion there, can you explain how you integrate, in concrete terms, ethical and compliance objectives into your US development strategy in this highly regulated market?
- What are the processes, controls and training put in place to ensure that your activities and local teams comply strictly with US banking sector regulations, which are considered very strict, in order to prevent any risk of unethical behaviour, compliance failure and sanctions?
- Are these risks valued and related provisions set aside in the group's accounts, and if so, for what amounts?
- What measures do you take?
Response of the Board of Directors:
In the United States (as elsewhere in the Group), the bank maintains a risk management system that involves the application of three lines of defence, entailing, among other things, a supervisory framework within the business itself (first line of defence) and robust additional programmes implemented by the Compliance and Risk departments (second line of defence). Under this model, the implementation of the development strategy for the United States is reviewed by the control functions (Compliance and Risk) in a general manner and on a case-by-case basis through the new product approval processes and daily supervision procedures, which take into account ethical and regulatory compliance objectives and obligations. A team dedicated to ethics and conduct reports to the CEO.
In accordance with local regulatory obligations, SG US also maintains an internal control programme that includes Written Supervisory Procedures adapted to the activities and the related risks (including risks related to unethical behaviour, compliance failure and sanctions). Each year, SG US approves and executes a mandatory training plan based on risks and an analysis of needs. This plan includes training that is specifically geared to managing risks of unethical behaviour, compliance failure and sanctions. All mandatory training is monitored to ensure completion (up to 100% completion rate for the targeted headcount).
Risks related to conduct, compliance failure and sanctions are not subject to prior generic provisioning but once an event such as a financial sanction becomes likely, a provision for the expected losses is set aside in accordance with the accounting rules and the applicable rules of prudence.
5. Which members of the Board of Directors will have the task of ensuring increased vigilance on the Group's strategic and operational ethics, bearing in mind that impeccable ethical behaviour is required worldwide?
Response of the Board of Directors:
The Group carries out monitoring to ensure that ethical and impeccable behaviour is applied wherever it operates in the world. Various controls are in place for this purpose.
As regards the role of the Board of Directors in ensuring greater vigilance on the Group's strategic and operational ethics, as in all areas applicable to the Board of Directors, this role is carried out in a collegial manner by all members of the Board of Directors.
In French law, there is a well-established precedent according to which the Board of Directors can only act collectively, based on the assumption that the Board's decisions must be taken on the basis of discussions between its members. Also, roles are not divided by law between the different members of the Board such that
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each has a separate role. The members of the Board of Directors should therefore be regarded collectively rather than individually.
This being the case, certain members of the Board of Directors carry our preparatory work for the Board as per their membership of the different Board committees. Incidentally, preparatory work on this particular subject is carried by the Nomination and Corporate Governance Committee of the Board of Directors in order for the Board to examine matters relating to corporate governance and carry out its work in the area of corporate culture.
Finally, as a reminder, the non-voting Director has the role of supporting the Board of Directors in its work on corporate social responsibility and in particular the energy transition. In addition to helping to define strategy in this area, the non-voting Director assists all the Board's committees when they discuss CSR-related issues.
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Société Générale SA published this content on 30 May 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 May 2024 14:29:43 UTC.
