SOCIETE GENERALE SOCIETE GENERALE Goldman Sachs conference, Rome, June 20th 2003 Goldman Sachs conference, Rome, June 20th 2003 Workshop "Is this credit cycle any different ?" Workshop "Is this credit cycle any different ?" Didier Hauguel Head of Global Risk Management
PRELIMINARY COMMENTS PRELIMINARY COMMENTS This credit cycle is somewhat different This credit cycle is somewhat different Geopolitical risks ! World economy: deflation risk vs. accommodative policy mixes ! Corporate governance new challenges ! ! Long term trend of increasing recourse by corporates to disintermediated financing ! Improved risk management techniques Societe Generale group's strategic undertakings have reduced its risk sensitivity across the cycle GS conference, Rome, June 20th 2003 - 2 -
SOCIETE GENERALE GROUP SOCIETE GENERALE GROUP Evolution of Group profile over time Evolution of Group profile over time Generating higher RoCWA (1) after provisions over the long term ! " Extracting more income per CWA " Improving risk management " Leads to a structurally higher RoCWA Group-wide drivers ! " Increasingly diversified business mix " Shift in geographical mix of assets ! Business-lines drivers " A productive and competitive Corporate & Investment Bank platform " Strong growth in domestic mortgages " Tight risk management in foreign retail (1) Return on Cooke-Weighted Assets: ratio of Operating Income / Cooke-Weighted assets GS conference, Rome, June 20th 2003 - 3 -
SOCIETE GENERALE GROUP SOCIETE GENERALE GROUP Extracting more income per CWA, and improving Extracting more income per CWA, and improving risk management risk management Long term evolution of NBI/CWA, GOI/CWA, Long term evolution of NBI/CWA, GOI/CWA, cost of risk, and Operating Income/CWA Over the last 12 years: cost of risk, and Operating Income/CWA 9% ! NBI: avg + 9% p.a. 8% NBI/CWA ! CWA: avg + 5% p.a. 7% ! GOI/CWA increased over period by 6% 1.7 times (from 1.3% in 1990 to 5% 2.2% in 2002) 4% ! Weighted average cost of risk: 3% 59 bp over period GOI/CWA 2% Operating income /CWA 1% Cost of risk 0% # Ratio of "Operating Income / 1990 1992 1994 1996 1998 2000 2002 Cooke-Weighted assets" more than doubled, from approx. 0.6% in 91-98 to approx. 1.5% in 99-02 GS conference, Rome, June 20th 2003 - 4 -
SOCIETE GENERALE GROUP SOCIETE GENERALE GROUP Increasingly diversified business mix Increasingly diversified business mix Capital allocated to businesses Capital allocated to businesses in EUR bn bn, period , period avg avg, on the basis of 6% of CWA + non , on the basis of 6% of CWA + non- -amortised goodwill, excl minority interests amortised goodwill, excl minority interests in EUR 12.4 11.0 Corporate & ! Strong cash flow generation, Investment 9.5 Banking 9.4 9.3 selective usage of capital in CIB AM & PB ! Rise in capital allocated to Retail Specialised and AM&PB: Financial Services " Internal growth in French and Foreign Retail outside Retail France " Acquisitions: EUR 3.3bn in 2001-2002 in Foreign Retail, AM&PB and SFS Retail in France ! Higher dispersion of risks 1998 1999 2000 2001 2002 GS conference, Rome, June 20th 2003 - 5 -
SOCIETE GENERALE GROUP SOCIETE GENERALE GROUP Shift in geographical mix of assets Shift in geographical mix of assets 1998- -2002 shift in geographical asset classes, in percentage points o 2002 shift in geographical asset classes, in percentage points of balance sheet f balance sheet 1998 +7 pts +3 pts CIBD +2 pts Asia, +1 pts Japan, CIBD North +0 pt Australia America Cent. & East. CIBD French retail: Western French Europe + France individuals Europe ex- retail: Medit & Afr France businesses -6 pts -7 pts GS conference, Rome, June 20th 2003 - 6 -
CORPORATE & INVESTMENT BANKING CORPORATE & INVESTMENT BANKING Selective usage of balance sheet in CIB Selective usage of balance sheet in CIB CIB Cooke Weighted Assets in EUR bn bn CIB Cooke Weighted Assets in EUR ! Over 1998-2002 period, NBI: +35% with CWAs -40% 101 -11% p.a ! Selective growth in CWAs from 2002 Change over onwards 82 5 years 76 Commercial +0% 41 71 Banking -9% p.a 63 63 ! Core strategic focus: Euro Capital 22 38 19 Markets, Derivatives, Structured 17 -14% p.a 20 Finance Debt finance (incl. Structured 49 41 41 Finance) ! 2002 revenue breakdown: 65% 37 -6% p.a 36 38 Europe, 25% US, 10% Asia 13 11 11 Equity & Advisory -8% p.a 8 7 6 ! Dynamic credit risk management mar- 98 mar- 99 mar- 00 mar- 01 mar- 02 mar- 03 and pro-active portfolio management GS conference, Rome, June 20th 2003 - 7 -
CORPORATE & INVESTMENT BANKING CORPORATE & INVESTMENT BANKING A productive and competitive CIB platform A productive and competitive CIB platform NBI / CWA ratio of euro- -zone zone CIBs CIBs in 2002 in 2002 NBI / CWA ratio of euro 8% 8% ! SG: strong productivity of 8% allocated capital ! 2/3 rds of 2002 revenues generated with clients 4% 4% 4% 4% ! Objective to increase cross- selling by 25% by 2005: " Corporates: from 5 products on average to over 6 " Financial institutions: from 3.6 to 4.5 Deutsche ABN Commerz Credit BNPP Credit SG Bank Amro Agricole Lyonnais GS conference, Rome, June 20th 2003 - 8 -
CORPORATE & INVESTMENT BANKING CORPORATE & INVESTMENT BANKING SG consistently ranking amongst the most SG consistently ranking amongst the most profitable continental European CIB platforms profitable continental European CIB platforms CIBD CIBD CIB with pre- -tax tax 50% pre highest ROE ROE (1) (1) ROE SG 40% CIB with highest ROE 30% Average SG ROE of CIBs 20% Average ROE of CIBs 10% CIB with lowest ROE 0% CIB with lowest ROE -10% -20% -30% -40% 2000 2001 2002 Q1 03 (1) Calculated using pre-tax net income and allocated equity GS conference, Rome, June 20th 2003 - 9 -
FRENCH NETWORKS FRENCH NETWORKS Strong growth in domestic mortgages Strong growth in domestic mortgages Domestic mortgage average Domestic mortgage average outstandings, in EUR , in EUR bn bn outstandings 33 +11% pa Consequence of strong ! competitive positions: 21 " Young, urban and growing customer base (1) " Largest non mutual retail bank in France 1998 Q1 03 (1)- From 6.8m customers in 1998 to 8.1m in 2002 - 16% household deposit market share in the Paris metropolitan area (11m inhabitants with GDP per capita 1/3 above French and EU-15 average) GS conference, Rome, June 20th 2003 - 10 -
FRENCH NETWORKS FRENCH NETWORKS Characteristics of the French mortgage market Characteristics of the French mortgage market Real Housing Prices Housing Prices in in Real selected countries selected countries Low cost of risk: 1 to 3 bp ! across the cycle 160 UK 140 ! High down payments USA 120 Low loan-to-value ! France 100 Fixed rates ! Base 100 in 1992 Japan 80 Modest evolution in French ! Germany real housing prices relative 60 to other countries 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Source: Bank for International Settlements GS conference, Rome, June 20th 2003 - 11 -
RETAIL BANKING OUTSIDE FRANCE RETAIL BANKING OUTSIDE FRANCE Diversification of country risk Diversification of country risk Breakdown of foreign retail revenues Breakdown of foreign retail revenues by geographic region in Q1- -03 03 by geographic region in Q1 ! Czech Republic, Slovenia to French Overseas 2004 future EU Other Departments & members: Czech join EU in May 2004 Territories Republic,Slovenia 1% 9% Africa ! Full control of management, 9% organisation, IT, marketing and 44% risk management of subsidiaries 23% Mediterranean Basin 14% ! Close monitoring of country risk Romania, Bulgaria GS conference, Rome, June 20th 2003 - 12 -
SOCIETE GENERALE GROUP SOCIETE GENERALE GROUP Conclusion Conclusion Quarterly net allocation to provisions, in EUR m Quarterly net allocation to provisions, in EUR m In Q1-2003: 403 325 330 287 286 ! Drop in provisioning for identified risks Corporate ! 68 bp cost of risk including Banking EUR 70m allocation to general credit risk reserve Retail Banking ! 2003 Group cost of risk guidance maintained Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 GS conference, Rome, June 20th 2003 - 13 -
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