(Bloomberg) -- A year ago, as Societe Generale SA was in the final stages of selecting a new chief executive officer, Slawomir Krupa swayed the board of directors by arguing the need for change.

On Monday, the 49 year-old is set to outline exactly what he plans to do differently to lift a stock that’s trading at the biggest discount to book value among the large European lenders. 

The pressure is high after Chairman Lorenzo Bini Smaghi made clear he wants the new CEO to increase efficiency in order to boost the valuation. Shares of SocGen have rallied 34% from a March low, with some analysts arguing the investor day in London could become a major driver for the stock.

“SocGen’s price-to-book ratio is still very low, and that’s the main thing Krupa will need to address,” said Jerome Legras, managing partner at Axiom Alternative Investments. “All the market concerns about the bank eventually relate to that.”

Krupa, a SocGen veteran who took over as CEO in May, inherited a lender that’s fallen behind rivals BNP Paribas SA and Credit Agricole SA as it struggled with strategic mistakes and individual missteps. His predecessor Frederic Oudea called the drop in the share price over his 15-year tenure his “one frustration.”

The market’s disenchantment stems in part from SocGen’s continued focus on investment banking, at a time when stricter regulations made that business less profitable. Oudea also miscalculated the importance of asset management, selling SocGen’s 20% stake in Amundi in 2015. Losses in equities trading at the onset of the pandemic and a roughly €3 billion hit last year when it exited Russia compounded those challenges. 

Krupa, the former head of the investment bank, pledged at the lender’s annual shareholder meeting in May that he would pursue a higher share price with “tenacious ambition.” But analysts are split about his ability to turn things around quickly.

The strategy update is likely to be “a key catalyst for the shares,” Citigroup Inc. analysts including Azzurra Guelfi wrote in a note. Krupa has previously signaled “an intention to run a tight ship in terms of the portfolios and regions in which SocGen operates.”

Others, such as Thomas Hallett at Keefe Bruyette & Woods, caution that his room to act is limited by a relatively weak capital cushion compared with peers. That makes it unlikely that SocGen will join the broader push among European lenders to raise payouts to investors, one of the most obvious tools to lift a lagging share price.

What Bloomberg Intelligence Says:

Societe Generale CEO Slawomir Krupa is likely to announce new financial targets on Sept. 18, potentially raising 2025’s profitability goal (10% ROTE) via a greater focus on efficiency gains and corporate & investment banking restructuring. A sector-low 0.3x 2024 tangible book valuation calls for a revamp, with more emphasis on share buybacks possible. 

- Philip Richards, senior banks analyst

SocGen’s 10% ROTE Target, CIB Strategy Set for Major Overhaul

SocGen currently hands back 50% of underlying net income to shareholders, a policy Oudea called “balanced.” Rival BNP Paribas boosted its own ratio to 60% last year.

“The day may disappoint rising expectations,” Hallett wrote in a note last month.

Krupa has hinted that he is likely to shrink or even dispose of some activities as part of his revamp as he seeks to improve the allocation of capital. The bank has already announced disposals in four African countries, with a fifth unit put under review. In addition, the lender is exploring a sale of its custodian unit, which could fetch a valuation of more than €1 billion, Bloomberg reported previously. SocGen sees the business as too small, and its fate has been the subject of speculation for years.

Other levers to lift the share prices include cost controls. The CEO has said he saw “more room for efficiency” throughout the group. With a cost-to-income ratio of 70.5% in the latest quarter, SocGen is the second-least efficient bank among major European lenders, according to data compiled by Bloomberg.

“Societe Generale has a new CEO, so we’re discussing the strategy — how to improve valuation, how to allocate the capital in a more efficient way,” Chairman Bini Smaghi said in an interview in June. “The cost-to-income ratio has to come down.”

At the investment bank, which Krupa oversaw until May, bankers have already gotten a taste of the new CEO’s thriftiness. Travel rules at the unit limit business trips to three days, with a minimum of four client meetings, according to people familiar with the matter. All exceptions need approval. As a result, some employees started to cover expenses themselves if planned trips don’t comply with the policy but are seen as too important to cancel, the people said, asking for anonymity to discuss internal matters.

A spokesperson for SocGen declined to comment on the travel policy.

Strategic changes already set in motion under Oudea should help the new CEO reach his goals. These include a tie-up in cash equities and research with AllianceBernstein, which Krupa has said fills an “obvious” gap in the bank’s product suite. The deal, which is expected to be completed next year, should help reduce SocGen’s reliance on derivatives. 

The merger of its domestic retail networks, whose IT integration was completed in May, should help bring costs down. SocGen, which is in the process of cutting jobs at the unit, aims to save about €450 million in annual costs by 2025 through the deal. The acquisition of car leasing firm Leaseplan is expected to add another €440 million in savings.

(Adds reasons for SocGen’s stock underperformance in sixth paragraph)

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