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Société Générale will close 15 per cent of its branch network and cut up to 900 jobs in France by 2020 as the bank looks to cut costs and accelerate its move into digital banking.
“I am convinced that the European banking sector is going through a kind of industrial revolution, which will probably take the next 10 years,” Frédéric Oudéa, chief executive of Société Générale, told the Financial Times.
He predicted the upheaval would be caused by digital disruption, extra regulation and policy shifts driven by issues such as climate change. He said retail banking, which produces a third of SocGen’s revenues, would face “more disruption in terms of relationship in the digital channels and probably more competitors”.
The French lender will cut 300 of its 2,000 branches and up to 900 employees from its French retail banking network.
SocGen, the third largest retail bank in France by revenue, had already announced 2,550 job cuts to the network at the beginning of 2016. It currently employs 23 000 people in its retail network.
The cuts, part of SocGen’s new 2020 plan which is scheduled to be unveiled in Paris on Tuesday, are in preparation for what Mr Oudea thinks will be a turbulent few years.
He said European banks were at a disadvantage because they face not only global capital and liquidity requirements, but also new EU rules on payments, data protection, and investment companies. “Here is a unique regulatory framework that means European banks are facing a higher challenge than their US or Asian counterparts,” he said.
The bank’s share price has dropped more than 8 per cent so far this year while the Euro Stoxx 600 banks index has increased 11.2 per cent.
As part of the 2020 plan, the bank will maintain its target of 3 per cent revenue growth per year, aiming for an additional €3.6bn in revenue by 2020. It is seeking return on tangible equity of 11.5 per cent.
The bank also intends to dispose of non-core businesses accounting for about 5 per cent of its capital requirements over the period.
SocGen is one of several banks said to be mulling a merger with Germany’s Commerzbank. But Mr Oudéa said large cross-border mergers between European banks would be difficult until there was harmonisation of eurozone capital and liquidity requirements.
“You can think about the design of the banking sector with fewer banks, domestic consolidation and maybe a few pan-European banks, but can I say that for the time being, in the coming quarters, the priority is first to transform the business.”
SocGen’s plans call for holding its dividend payout ratio at 50 per cent. Some analysts had hoped for an increase to 60 per cent.
The bank also seeks to reach an annual cost base of €17.8bn by 2020, helped by a new €1.1bn savings plan. That would allow SocGen’s cost-to-income ratio to shrink by 1 percentage point per year to reach 63 per cent by 2020.
The bank predicts that “a progressive increase” in global interest rates as monetary policy normalises to boost market volatility and lift revenues at its corporate and investment bank by 2.5 per cent per year by 2020.
SocGen was under pressure to deliver something different after its third-quarter results were dragged down by weak trading revenues and increased provisions for legal disputes with US authorities. The bank said it was “currently in discussions with the US authorities in order to resolve two litigations” relating to the Libyan Investment Authority and interbank benchmark rates.