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Tuesday, October 27, 2020

Societe Generale SA (ADR) (OTCMKTS:SCGLY) Eyes on the EU

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Societe Generale SA (ADR) (OTCMKTS:SCGLY) is a major player in the global investment banking system now enduring the spasms of confidence and concern that is EU politics. The banking system in the EU was never recapitalized to the degree that US, UK, and other OECD banks were following the crisis in 2008-09 due to some differences in central banking macroprudential rules and laws.

The result has been a renewed sense of crisis. Deutsche Bank is the most striking example of a victim in this process, but there are concerns about others. That said, SocGen has done well in EU stress tests so far as is believed to be in good shape. Naturally, there are risks to come given the tenuous politics of the region, but there are also opportunities, particularly for those in good shape but suffering unsubstantiated undervaluation due to regional concerns.

Societe Generale SA (ADR) (OTCMKTS:SCGLY) bills itself as a company that Societe Generale Group provides financial services in Europe and internationally.

The company operates through three divisions: French Retail Banking, International Banking and Financial Services, and Global Banking and Investor Solutions. It offers domestic banking services to individuals, professionals, businesses, communities, and organizations under the Societe Generale, Crédit du Nord, and Boursorama brand names; and international retail banking and consumer credit services to individuals, professionals, corporates, institutions, and associations in Europe, Russia, Africa, Asia, the Mediterranean Basin, and French overseas departments and territories.

The company also provides life, retirement savings schemes, personal protection, auto, home, personal accident, school, and other insurance products; vehicle leasing and fleet management services; and vendor and equipment finance.

In addition, it assists corporate, financial institutions, public sector institutions, and family offices in terms of investments, strategic advisory services, capital raising, and capital structure optimization; and offers structured finance, and investment and risk management solutions. Further, the company provides access to market through solutions in equities, fixed income, currencies, commodities, and alternative investments; debt refinancing solutions; and private banking services, such as asset allocation, portfolio management, funds, markets, and wealth management solutions to high net worth individuals.

Additionally, it offers asset management solutions; and securities services, including clearing, custody and trustee, liquidity management, fund administration and asset servicing, fund distribution, and global issuer services, as well as cash management, correspondent banking, international trade financing, factoring, and foreign exchange services. Societe Generale Group was founded in 1864 and is headquartered in Paris, France.

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As noted above, the key factor for understanding the investment thesis in shares of SCGLY stock is hopelessly and inescapably entwined with the political and monetary paths forward for the EU.

In terms of politics, as UK banks are finding out now, membership in the single market and single currency EU system is not a guarantee. A defining electoral cycle is underway in France and will largely shape the future for holders of SCGLY stock. At this point, the potential for a “Frexit” rests with the odds of a French election of far-right National Front party candidate Marine Le Pen. Le Pen has stated that she would immediately move to push France out of the EU if elected.

The election will take place in April and May 2017.

If France leaves the EU, it is widely believed that the EU would be dissolved, sending the region’s banking system into chaos.

However, importantly, the most likely outcome right now is that Le Pen will not win, France will remain in the EU, the EU will avoid chaos, and SocGen will soar higher as the risk of this immediate Armageddon scenario subsides mid-way through next year.

At this time, carrying a capital value in the market of $29.9M, SCGLY stands out as a intriguing story. The stock floats on a balance sheet equipped with a significant war chest ($763.05B) of cash on the books, which stands against an appreciable load ($451.86B) of total accumulated debt. The books are not where the story is written here. The future is either filled with chaos or opportunity, but most likely opportunity. And chaos, if it comes, will come slowly and with a long series of steps downward beginning with surprising polls. For continuing coverage on shares of $SCGLY stock, and our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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