Societe Generale Earnings: Regulated Interest Rates Continue To Weigh on Profits

The regulated nature of French interest rates on retail deposits and mortgages continues to weigh on no-moat Societe Generale's earnings. It reported operating income of EUR 1.7 billion for second-quarter 2023, 29% lower than it reported a year earlier. Revenue declined by 5% as regulated interest rates prevented Societe Generale from seeing the same revenue uplift that most of its European peers have enjoyed. As we anticipated, the income from securities trading also declined as market volatility declined. Market volatility tends to support higher securities trading income as clients need more hedging solutions and bid-ask spreads tend to widen. Quarterly operating expenses increased by 3% year on year. Societe Generale will be pleased that it managed to keep cost increases below inflation. We maintain our fair value estimate for the stock at EUR 25.50.