Poor Stress Test for Societe Generale

No-moat Societe Generale struggled during the recent ECB stress test. Its 2023 common equity Tier 1 ratio under the adverse scenario of 7.5% is well below the 9% regulatory minimum common equity Tier 1 ratio it would need to keep to pay dividends still. Only two European banks that we cover fell further below the MDA threshold. Under the adverse scenario, Societe Generale’s common equity Tier 1 ratio shrunk by 5.6 basis points from the 13.2% it reported at the end of 2020. This decrease is among the steepest of the European banks that we cover. If we compare Societe Generale’s operational performance under the base and adverse scenarios, credit quality held up well, but the decline in revenue was the greatest out of all the European banks we cover. We maintain our no-moat rating and our EUR 25.50 per share fair value estimate. The stress test result cast doubts over a view that the firm has excess capital. Societe Generale’s poor performance under the stress test further supports our very high uncertainty rating and the higher cost of capital we use to value its shares.