Goldman Sachs and Deutsche Bank are still not overly enthusiastic about the current state of Société Générale shares while the bank, which just posted a heavy loss for the second quarter, is facing major challenges. They maintain a neutral opinion on the value and, above all else, have recently lowered their price targets from €18.80 (US$22.29) to €18 (US$21.34) per share, and from €18.50 (US$21.94) to €16.50 (US$19.56) per share respectively. This is despite the fact that Deutsche Bank believes that the French bank may have already bottomed out in the second quarter of this year. Goldman Sachs, for its part, also reduced its share valuation due to a 0.5% increase in the cost of capital due to greater uncertainty over profits and losses in market share in the corporate and investment banking business.
More generally, for the banking sector as a whole, the pressure on the revenues of French banks is now forcing them to reduce their costs in a sustainable manner, according to the findings of a study by Scope Ratings which was published on 11 August. The pre-crisis problems have also not yet disappeared for the banks, and “the measures taken to revive the economy are even exacerbating them”, the rating agency notes. Indeed, the environment of low interest rates being exacerbated by the ultra-accommodating monetary policy of the European Central Bank (ECB) is heavily weighing on their margins.
And as the debt of French companies continues to increase, their ability to repay that debt could become quite a problem, says analyst Nicolas Hardy, the executive director in the financial institutions team at Scope Ratings. Hence the inevitable losses for banks on the credits they have granted…
With the current situation faced by the banks being as uncertain as it is, it has never been more important to follow the daily financial news, which is easy with our free companion app, Born2Invest.
What does the technical analysis say?
“French banks are still lagging behind compared to the CAC 40. This is notably the case for Societe Generale, which has hardly bounced back after the initial heavy shock of the health crisis,” notes Christophe Machinot, independent analyst and member of the board of the AFATE (French Association of Technical Analysts).
Using Ichimoku Kinkō Hyō analysis on the daily graph “allows us to quickly identify trends: bull above the cloud, bear below the cloud. In the case of Societe Generale, the end of February was marked by a very violent transition from an upward trend to a downward trend,” emphasizes the expert, who notes that “visually, the cloud has now become a barrier for the stock. So much so that the bank recorded a historic low of €11.34 (US$13.45) on 14 May 2020”.
In the last few days, we can see that the action is starting to bounce back to try to get through the cloud. Prices had already tried unsuccessfully to cross the cloud in July. “If in the coming weeks Societe Generale manages to exceed €16.27 (US$19.29) per share, this would be an overwhelmingly encouraging signal for the stock to finally break out of its current downwards trend, with a confirmation occurring above €18.29 (US$21.69) per share. But we must remain prudent for the time being, as investors will remain on hold as long as the prices do not move away from the all-time lows,” warned Christophe Machinot.
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