Dubai: Frédéric Oudéa is close to completing a two-decade long career at French banking giant Société Générale. He assumed the role of chief executive officer in 2008 and went on to become Chairman and Chief Executive of the bank in 2009. Oudéa steered the bank through a series of crises starting with a trading scandal that cost the bank nearly €5 billion (Dh23.2 billion) in 2008, followed by the global financial crisis and the European sovereign crisis. When crises came calling one after the other, he carried out a series of reforms to strengthen the bank and reposition it as a leading European institution. In an exclusive interview with Gulf News, Oudéa discusses global banking sector outlook, the future of the Eurozone banks and his plans for expansion in the Middle East and Africa region.
Gulf News: Global banking sector went through a massive crisis, followed by restructuring of balance sheets and business models, sitting at the top of a leading global bank what is your view of the global banking industry?
Frédéric Oudéa: If we compare the current situation with 2008 and 2009 and also with the stress which took place in 2011 in the Eurozone, I must say we have come a long way and a lot of positive changes have happened for the global banking industry. For a bank like us, we dealt with issues related to capital and liquidity at a very early stage in the crisis and the action of the central banks in particular the European Central Bank (ECB) in 2011 was very timely and efficient. We are in a situation where liquidity is available but at the same time we have many challenges ahead. Global growth is not even. Eurozone economies and some of the emerging economies are facing slow growth. There are also serious challenges the world is facing on geopolitical front. The banking industry as a whole is facing challenges from the low interest rate environment.
The banking industry is going through a great transition in terms of regulatory environment. There needs to be more clarity. We are waiting for the finalisation of certain ratios on capital and liquidity. There are discussions on the taxation of certain activities. What is clear is that the banks are facing new rules on regulatory front on areas such as capital, liquidity and taxation. Clearly, banks are facing a world which is more demanding on banks in terms of controls and as far as the regulatory framework is concerned.
GN: You have been with Société Générale Group for nearly two decades and have faced some of the worst crises for the banking sector and the Group. Looking back, can you say the worst is over?
FO: I would say the worst is behind for the banking sector and Société Générale Group. For European banks as a whole, I believe there have been substantial improvements in liquidity and asset quality, as well as an overall increase in the level of capital held by banks. A few weeks from now we will see the results of the asset quality review (AQR) and the stress test. I expect to see a significant improvement in the quality of the balance sheets across the board. Banks have certainly adapted to the new environment and today the challenges banks face are not about solvency or liquidity. But these are more about the capacity to adapt to changes in technologies and the challenge of profitability. We make money, but what we need to improve is the return on the capital deployed. At Société Générale Group, we aim to achieve a10 per cent return on capital by 2016 and most European banks have similar targets.
GN: Is stability finally returning to European banking sector? We just saw a weak response to targeted longer-term refinancing operations (TLTRO) auction? Why are the banks refusing cheap liquidity?
FO: I do agree the banking sector response has been weak to TLTRO, but I am not surprised. If you look at Europe, you still see some issues relating to the financing of the economy. It is fair to say that in the peripheral Europe (Spain, Italy Portugal and Greece) the credit is still contracting and rates are a bit too high. The whole idea behind the TLTRO is to ensure credit flow at viable costs. I am not surprised about the low offtake, because we as banks face contradictory objectives. On the one hand, governments and central banks want us to lend more, but at the same time there are also discussions on imposing stringent regulatory ratios which put pressure on the balance sheets. Look at Eurozone banks; they are faced with a situation where there is plenty of liquidity and low credit demand.
What is important is to restore confidence and visibility in particular through structural reforms that will help companies improve their competitiveness and increase their margins, so that they start investing again.
GN: Two major events are coming up on the European banking sector calendar, the AQR and the stress test. What are your expectations? Are there going to be stress test failures?
FO: I don’t have any specific information on the outcome of these two events. But for Société Générale we are comfortable as we have a sustainable business model and a robust capital ratio. I think a lot of banks are well prepared for the AQR and the stress test. Those banks which were in need of capital have already raised equity, so, I don’t expect any big surprises.
GN: There are expectations among banking analysts that the ECB is likely to go for a European version of quantitative easing (QE) by expanding its balance sheet? What are your expectations of these on the bank balance sheets?
FO: I will not try to predict what the ECB might do. That said, I still believe that the approach of the ECB is fundamentally different from that of the Fed. I don’t think that we should expect the kind of dramatic expansion of the ECB’s balance sheet through a QE like action. In such monetary policy initiatives, it is easy to expand central bank’s balance sheet, but it is pretty complex to exit. Additionally excessive liquidity could distort asset prices and further depress interest rates. Low interest rates are not good for investors, insurance companies and particularly not good for banks. I think the ECB is focusing first on tailored instruments like LTRO, TLTRO, negative rates on deposits with the central bank and going further it may be through buying asset backed securities (ABS), which should be announced in the coming months.
GN: Soc Gen has faced a number of crises since 2008. Having led the bank through these crises what do you look ahead for the group?
FO: Yes, it is true that we went through a number of these crises, but as we stand today we are happy that the bank has returned to stability. When we compare ourselves with a number of other banks, we have had fewer losses and we have been able to preserve our business model. We have completed the job of getting rid of any legacy non-performing assets. That means by the beginning of 2014 we were able to turn a new page and open a new chapter with a new strategy. Our universal banking model is vindicated and we think we can capitalise on our very strong expertise and solid foundations. We have a balanced and resilient model, with retail banking accounting for 60 per cent of our revenues as well as of our risk weighted assets, which means good access to liquidity through deposits. Beyond this we are very confident about our global banking and investor solutions division, which includes investment banking, private banking and investor services such as clearing. Our private banking and wealth management businesses are profitable and we expect solid growth in all these segments of business. We are on track to deliver on our target 10 per cent return on equity by 2016.
