(News Bulletin 247) – The American bank raised its opinion on the establishment of La Défense, expecting the company to reduce its costs. She also thinks that net interest income in France will hit the bottom of the pool before rising again next year.

This is the sector that has clearly passed the test of the half-yearly results on the Paris Stock Exchange: the banks. In our CAC 40 rankings, Crédit Agricole SA and Société Générale ranked second and third in the ranking, based on the performance of the share compared to the index during the session following the publication of the half-year accounts. . As for BNP Paribas, if it is much further, its title had still taken nearly 3% after the announcement of its results.

These good stock market reactions do not prevent the banks from still having potential. In particular Societe Generale, an establishment depreciated for many years in terms of multiples of valuations, its share trading at 5.6 times the expected profits over twelve months, against more than 8 for BNP Paribas and more than 9 for JP Morgan.

The recent good results of Banque de la Défense may encourage investors to position themselves. And analysts to review their judgment.

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This Wednesday, the Morgan Stanley bank, in a sector note, raised its opinion on Societe Generale, going from “online weighting” to “overweight” (the equivalent of buying at Morgan Stanley), with an increased price target at 35 euros, against 28 euros previously. It also confirmed its recommendations on BNP Paribas and Crédit Agricole SA, at “online weighting” and “underweight” respectively, while adjusting its targets upwards (77 euros against 71 euros for BNP and 13 euros against 11, 5 euros for Crédit Agricole SA).

Towards a rebound in net interest income in 2024

Morgan Stanley lists a set of reasons that make it more optimistic for Societe Generale. First, it estimates that net interest income in France in retail banking is close to bottoming out.

For several months, French banks have been penalized by the specificities of the French market, where loans remain at a fixed rate. and therefore the banks do not benefit immediately from the rise in interest rates on the income side, but gradually, the time that the new, more profitable loans take up a significant share in the stocks of loans. On the other hand, the rise in the rates of regulated and tax-exempt savings accounts (Livret A, LDDS), which followed one another with the surge in inflation, are immediate and immediately increase the cost of resources for French banks.

Thus, in the second quarter, Societe Generale’s net banking income (equivalent to income) fell by 13.6% in France in retail banking and the net interest margin excluding PEL/CEL fell by 17.4% on a year.

Nevertheless, “as the peak of rates approaches” and while the new loans at higher rates will gradually produce their impact in the accounts, the net interest income of SocGen’s retail banking in France “is expected to bottom out. before growing in 2024, when banks in other markets “have already seen these revenues” peak, “says Morgan Stanley. The establishment also notes that the freezing of the Livret A rate at 3% by the Banque de France until 2025 should alleviate the pressure on the resources part.

A high-stakes investor day

Morgan Stanley also believes that Societe Generale has the potential to reduce its costs, in particular via two internal mergers, namely that between the long-term automobile leasing specialists ALD and LeasePlan and that of the networks of Societe Generale and Crédit du Nord, united under the common banner “SG”. To which would be added efficiency gains in investment banking.

In addition, Morgan Stanley expects that the day dedicated to investors on September 18 will be the subject of questions on potential restructuring, with why not divestitures. “SocGen is present in more than 70 countries, which could allow it to optimize its footprint”, and ultimately free up capital, judges the American establishment.

On the Paris Stock Exchange, Societe Generale action is supported by the opinion of Morgan Stanley. Its title won 1.3% at the end of the session, after having taken more than 3% in the morning, and signed one of the largest increases in the CAC 40.

In June, Jefferies had already raised its recommendation to buy the bank, listing several catalysts including the September 18 investor day, which will be an important test for the new CEO, Slawomir Krupa.