Fitch Ratings recently commented on Societe Generale‘s (SG) sale of its equipment leasing arm, SG Equipment Finance (SGEF), noting its impact on SG’s credit profile and the potential benefits for Groupe BPCE.
According to Fitch, the sale of SGEF is neutral for SG’s credit profile. The sales “supports capital trajectory while marginally narrowing its business model,” Fitch said.
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However, Fitch views the deal as slightly positive for Groupe BPCE, as it enhances the group’s business diversification and is expected to improve profitability, a rating weakness compared to peers.
Key factors for Fitch in 2024 will include SG’s performance in French retail banking, its capital trajectory, and the execution of its 2026 strategic plan.
SG anticipates that the sale of SGEF will bolster its common equity Tier 1 (CET1) ratio by approximately 25 basis points in the first quarter of 2025. This is expected by freeing up around EUR8 billion of risk-weighted assets (RWAs) from approximately EUR15 billion of outstanding loans. These actions are crucial for SG to reach its medium-term CET1 ratio target of 13% by 2026, along with anticipated improvements in operating performance across its main divisions.
The divestment underscores SG’s strategic focus on businesses with better growth prospects and competitive strengths. Although there may be a modest negative impact on profitability and business diversification, the sale is expected to marginally enhance liquidity and funding for SG, given the wholesale nature of the equipment leasing business.
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By GlobalDataSGEF, which mainly operates in industrial, transportation, and technology sectors, contributes less than 2% of SG’s total revenue. While historically performing well, it had limited synergies with other group businesses. This move allows SG to concentrate on areas of higher growth potential.
Fitch views the acquisition of SGEF by Groupe BPCE as slightly credit positive. It enhances BPCE’s business diversification and aligns with its risk appetite, potentially boosting profitability in the medium term. With BPCE already possessing expertise in equipment leasing through BPCE Lease in France, the integration of SGEF is expected to position BPCE as a European market leader in this sector.
This diversification away from a domestic focus is viewed positively by Fitch, although it has previously impacted BPCE’s profitability due to temporary interest margin pressure. Fitch estimates that the acquired business should significantly improve BPCE’s operating profit/RWAs ratio, supporting profitability rebound in 2025.
Despite the anticipated benefits, BPCE expects a 40 basis points decrease in its CET1 capital ratio post-acquisition. However, Fitch believes BPCE can generate additional capital to maintain a CET1 ratio above 15.5% after absorbing SGEF’s business.
While Societe Generale’s sale of its equipment leasing business is neutral for its credit profile, it presents an opportunity for both SG and Groupe BPCE to optimise their strategic positions and potentially enhance profitability in the medium term.
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