Rogue traders, lower profits and investor-day flops
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
“OK, OK, I’ll come back.” So tweeted Jérôme Kerviel, the notorious rogue trader who brought his then employer Société Générale to its knees back in 2008.
The man who inflicted a €4.9bn loss on SocGen was offering his tongue-in-cheek commentary on the bank’s investor day last week — an event designed to boost shareholder interest but which appeared to backfire, with the stock tumbling more than 12 per cent on the day. (That was more than twice the fall triggered by news of Kerviel’s catastrophic losses 15 years ago).
Snide remarks aside, it is hard to see the stock market response to SocGen’s efforts to reset perceptions as anything other than a disappointment. France’s third-largest bank by assets was already trading at less than a third of the value of its net assets. Now, that so-called price-to-book value is barely more than a quarter. That is very low even by European standards, and a fraction of the ratings that US rivals command.
It is just that kind of gap — and a hope that if only shareholders better understood their operations then surely the stock would re-rate — that has persuaded a growing number of European banks to stage investor days this year. According to Veritum, a consultancy, the continent is on track for 14 such events this year, the highest since the Covid pandemic.
European banks are fighting stiff headwinds. The macroeconomic outlook is bleaker than for the US, interest rates are lower (which tends to crimp the margin on lending) and are likely to have peaked. And those groups like SocGen that operate in international capital markets, are increasingly being outgunned by the giants of Wall Street, having shrunk since the global financial crisis while JPMorgan, Morgan Stanley and their ilk have expanded aggressively.
US groups have had their investor-day flops too, though. In the three weeks following Goldman Sachs’s investor day in February, its stock slumped 17 per cent.
Are there lessons to learn? One is certainly not to hope for short-term rewards from such events. Even after six months, Veritum’s analysis shows that European and US banks were both as likely to underperform the sector as to outperform.
But there is also some evidence that the way in which an investor day is conducted can make a big difference.
SocGen deliberately wanted to “change the mindset” among existing and prospective investors as new chief executive Slawomir Krupa takes the reins. He is hopeful that the modest expectations that he announced on Monday last week — virtually no revenue growth, a slightly lower profit target, a conservative capital buffer and a less volatile business mix — will be rewarded over the medium term. In future, the bank would focus on “outcomes not promises” — a subtle swipe at predecessor Frédéric Oudéa, under whom targets were missed. If SocGen is indeed rewarded, it will only be when it begins meeting targets.
Krupa is about to embark on a US roadshow designed to broaden its investor base, currently dominated by passive investors and domestic French funds. Some large US fund managers, such as Capital Group, last year fled European banks, spooked by the bleak outlook. But the SocGen boss will be attempting to convince them that today’s ultra-low valuation is a buying opportunity. Creating the body of material evidence at the investor day is vital, giving prospective as well as existing shareholders an in-depth understanding of operations and future targets.
It is also a way to hold senior managers to account for their future performance. As Jamie Dimon, JPMorgan chief executive, acknowledged in his most recent shareholder letter, it had been a mistake to skip two years of investor days because it left shareholders in the dark about key strategic moves. “Having to explain your business to investors, comparing yourself with competitors and looking at the business as a whole — across sales, marketing, returns, growth, risks and strategic opportunities — was a terrific exercise for us. We learned our lesson!”
Despite a slight share price fall on the day, JPM went on to register 15 per cent stock growth over the following three months, and it is still 7 per cent higher today. It may be six months, or even a year or two before it is evident whether SocGen’s gambit pays off and whether it, or any other European bank, can buck the challenging environment. But the strategic focus, greater transparency and grounded realism that a good investor day should bring are certainly a good start — however much a disgraced former employee might joke about it.
patrick.jenkins@ft.com
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