Decryption of the CAC 40 charts at the close – Monday, February 18, 2019 The biggest rise


Posted on 18/02/2019 at 18h00

(More Bank) – SOCIETE GENERALE (+ 2.57% to 25.17 euros)

The banking sector is well oriented this Monday. Societe Generale finished a second session in the green, having posted a gain of + 3.20% last Friday. For its part, BNP Paribas rose by 0.75% and Credit Agricole by 2.45%

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Strengths of value

– Universal bank operating in retail banking, in France (number 3 with Crédit du Nord and Boursorama Banque) and in Eastern Europe, and in corporate finance and international financial services;

– Balance of the 3 businesses, the net banking income of 24 billion being balanced between the retail bank in France, the foreign networks and the international financial services and the bank of large customers and solutions investors;

– Acceleration of digital transformation;

– Strong positions in Western Europe (69% of revenues), and strong positions in the EEC (10%), then Russia (3%), Africa (5%), America (7%) and Asia-Oceania ( 6%);

– Raising Basel 3 ratios to 11.6% for the Common Equity Tier One;

– Strong balance sheet enabling a sharp rise in the dividend.

Weaknesses in value

– Investor distrust of European banks and European regulation that consumes own funds;

– The rise of online banks and internet giants or telecoms;

– Strong presence in Russia via the Rosbank subsidiary, as well as in Eastern European countries where the increase in credits will lead to an increase in capital requirements;

– Morbidity of the retail bank in France, which may be affected by the freezing of bank rates requested by the government after the movement of "yellow vests" and, in the investment bank, sensitivity to the turmoil of the stock markets ( tensions caused by the risks of trade war) and bonds (risk of a return to inflation).

How to follow the value

– The valuation of banks depends on 7 points: liquidity positions, ability to meet the so-called "Basel 3" solvency ratio equal to 9.5% of equity, control of investment banking commitments, centralization of derivatives offsets cost of risk, which is itself related to the economic environment, return on equity or ROE and, finally, decisions of Central Banks – USFD and European ECB;

– Increase in the online activity to which will be devoted € 1.5 billion by 2020, both for Boursorama and conventional networks -General and Crédit du Nord;

– continued investment in alternative financing;

– Execution of the adaptation of retail banking in France (reduction in the number of branches, reduction of back-office platforms and automation of 80% of internal processes;

– Exploded capital of which the employees are the first shareholders with nearly 13% of the voting rights.

Finance – Banks

As noted in the third quarter results, insurance is a growing focus of the French retail banking business. As a result, insurance accounted for more than 15% of BNP Paribas Group's pre-tax income, with a share of sales limited to 7%. Crédit Agricole, the leading life insurance company in France alongside CNP, posted insurance turnover jumped by 27% in one year (to 645 million euros), for a result before taxes of 490 million euros (up 38% year-on-year). Faced with a historic business, the granting of credit, which releases margins increasingly limited in a low interest rate environment, the insurance business has become essential to French banking institutions. Bancassurers would now even account for 40% of the insurance market in France.