Understanding our first quarter 2020 results

Dear shareholder,

In the face of the unprecedented health, economic and social crisis we are experiencing, our teams worldwide have shown determination and unwavering tenacity in a truly exceptional mobilisation. Based on our strong sense of responsibility, the Group’s commitment is threefold: firstly, to protect the health of our clients and our staff by applying security measures in all of our sites and activities; secondly, to ensure the continuity of our services as a business of vital importance; and thirdly, to support our staff, clients, suppliers and all our partners during this especially difficult period. In every country where we operate, we are actively relaying the health and economic support measures put in place by governments, and we are also acting with our own resources and means. In France, the Group was extremely reactive in setting up the State Guaranteed Loan (Prêt Garanti par l’Etat or PGE), and as of 30th April, around 60,000 requests have been received for a total amount of €14.8 billion.  We have also implemented a global solidarity programme, which could reach €50 million. The General Management has decided to contribute to the financing of this plan by renouncing half of the variable component of its salary in respect of the 2020 financial year. 

We are tackling this crisis with insight but are confident in the soundness of our business model, the agility of our operational model driven by technological and digital advancements and the robustness of our capital and risk profile. Over the last few quarters, we have strengthened our business model. In particular, we have invested in our core businesses, pursued our refocusing plan, and continued to roll out new technologies in our businesses in order to enhance the experience of our clients. We also significantly strengthened our capital ratio throughout 2019.  At 31st March 2020, it stood at 12.6%, around 350 basis points above the regulatory requirement. As for our loan portfolio, it is of good quality and diversified, on both a geographical and sector basis.

While our activities got off to a good start to the year, the crisis affected our results at the end of the first quarter despite the rapid adaptation of our operating infrastructure. The impact of the crisis varied substantially according to the businesses. French Retail Banking and International Retail Banking & Financial Services proved resilient, with underlying profitability of 10.7% and 15.4% respectively. However, Global Banking & Investor Solutions was penalised heavily by market conditions. The increase in the cost of risk inherent in the economic crisis also adversely affected our results. It amounted to 65 basis points. Reported Group net income totalled -€326 million and underlying Group net income €98 million in Q1 2020.

Throughout 2020, we will continue with our efforts in terms of costs and introduce additional cost reduction measures amounting to between €600 million and €700 million. We expect a cost of risk of around 70 basis points for 2020 in the baseline scenario of the gradual recovery of economies and around 100 basis points in the scenario of an extended shutdown. With regard to our capital level (CET1 ratio), as of end of 2020, we expect a buffer between 200 and 250 basis points over regulatory requirement.

As you are aware, the European Central Bank has asked that banks do not pay dividends until at least the beginning of October 2020. Following this request, our Board of Directors has decided to cancel any dividend distribution for the 2019 fiscal year. During the second half of 2020, the Board will propose guidelines on shareholder return that could consist of the payment of an interim dividend on 2020 results or an exceptional dividend in the form of a distribution of reserves, the latter requiring the holding of a Shareholders' Meeting.

This crisis will deeply affect our societies, economies and companies for some time. However, we must think of the long term and look to the future in order to build the post-crisis environment. Beyond our focused adaptation to the immediate impact of the crisis, we are already working on the designs of our next strategic plan 2021-2025 to take into account the new post-crisis environment.

I would like to thank you again for your loyalty and the trust you have placed in our Group.

Frédéric Oudéa,
Chief Executive Officer

Q1 2020 results in a nutshell

1. Q1 revenues totalled €5.2 billion, down -16.5%, with the impact of the crisis varying significantly according to the businesses

French Retail Banking posted net banking income of €1.9 billion (-1.2%), excluding PEL/CEL, with a resilient performance this quarter 
French Retail Banking’s three brands, Société Générale, Crédit du Nord and Boursorama, enjoyed a healthy commercial momentum in Q1 20, in particular in January and February. Boursorama consolidated its position as the leading online bank in France, with more than 2.3 million clients at end-March 2020. With France placed in lockdown since mid-March 2020, French Retail Banking has implemented measures to ensure operational continuity: supporting its customers while ensuring the safety of employees. Around 85% of branches and all back offices remain open, with operational adjustments. Average loan outstandings rose +7.3% vs. Q1 19 (to €205.9 billion) supported by favourable momentum in housing loans, consumer credit and corporate investment loans.

International Retail Banking and Financial Services’ revenues rose +1.6%* to €2 billion
This increase was driven by the commercial momentum in International Retail Banking whose net banking income was up +2.9%* in Q1 20. A slowdown has been experienced in Western Europe since mid-March.
Insurance revenues were up +1.8%* when restated for the contribution to the solidarity fund in France for EUR 6 million. Financial Services to Corporates’ revenues were slightly lower (-0.9%*).

Global Banking & Investor Solutions’ revenues were down -20.7%** at €1.6 billion in an exceptional market environment which strongly penalised Global Markets revenues
The strong performance of FIC (fixed income and currency) activities in Q1 20 (+51.6% ***) failed to offset the decline in Equity revenues. Equity activities experienced exceptional market dislocation, with declines in indices, extreme volatility levels and a sharp decline in share dividends. Overall, Global Markets & Investor Services’ revenues were down - 42.2% at €768 million.
Financing and Advisory’s net banking income totalled €629 million in Q1 20 (-4.1%) with, in particular, resilient structured finance revenues.
Asset and Wealth Management’s net banking income amounted to €230 million (+5.5% when adjusted for the revaluation of SIX securities and for the disposal of Private Banking in Belgium).

2. Underlying operating expenses were down -3.6% in Q1 20 at €-4.2 billion

The Group confirms its target to decrease operating expenses for the full year 2020 compared to 2019, excluding exceptional items. Furthermore, the Group will introduce additional cost reduction measures through 2020 for a net amount comprised between €600 million and €700 million.

3. The cost of risk stood at 65 basis points, reflecting the initial effects of COVID 19

The cost of risk was significantly higher vs. Q1 19, notably marked by the increase in provisioning in the context of the Covid-19 crisis.

4. Reported Group net income totalled -€326m and underlying Group net income €98m.

The changes mentioned: Q1 2020 versus Q1 2019
* When adjusted for changes in Group structure and at constant exchange rates.
** When adjusted for the impact of restructuring, the revaluation of SIX securities, and the disposal of Private Banking in Belgium
*** When adjusted for the impact of restructuring in Global Markets