It has been 20 years since Société Générale gave up the quaint trappings of historic Paris for the gleaming practicality of its towers in La Défense, Paris’s modern business district. Now, Séverin Cabannes, SocGen’s new investment bank chief, is on a mission to convince shareholders of the merits of another pragmatic break with the past — reinventing his division around a broader base than the market-leading equities derivatives franchise that critics say is fading fast. The investment bank has been under fierce scrutiny following the March departure of Mr Cabannes’ predecessor Didier Valet and a “watershed” first quarter where SocGen’s equities revenues rose just 6 per cent while rival BNP Paribas’ were up 38 per cent, according to Goldman Sachs data. Rival bankers and former SocGen staff say its woes started much earlier, beginning with the departure almost 10 years ago of the star traders who created the bank’s market-leading equity derivatives business, including Jean-Pierre Mustier, now chief executive of Italian lender UniCredit. “They lost some real leaders in the field who were instrumental in getting SocGen where they got to,” said one equities professional who used to work at SocGen and now works for a rival bank. “It’s a real real shame for the amazing franchise that they had.”
SocGen is now Emea’s [Europe, Middle East and Africa] third biggest equities operator by revenue, having lost its number one ranking in 2013, according to data from industry monitor Coalition. Its shares have fallen 23 per cent since March 1; shares in the benchmark Stoxx EU 50 banks have fallen almost 17 per cent over the same period, while shares in France’s CAC 40 have risen almost 1.5 per cent. In an interview with the Financial Times at the bank’s headquarters, Mr Cabannes said he does not think equity derivatives is what differentiates SocGen any more, but that the bank must explain itself better. “I think we have still to do more pedagogic work,” said the 60-year-old Frenchman, who has been at SocGen since 2007. “In the first quarter we made a dedicated deep dive on our global market activities for our investors and analysts. It was very well received and I think we have to continue in that direction.” The deep dive emphasised the extent of the fixed income business, which SocGen deliberately began growing in the aftermath of the financial crisis because the bank believed it attracted a risk premium for being overly exposed to equities. Mr Cabannes stands by SocGen’s attempt at reinvention by investing in fixed income at a time when almost every other bank in the world was cutting it back, as well as SocGen’s decision to limit risk exposure in the “unstable” markets of the first quarter, when volatility lurched from record lows to extreme highs and the lender “had a low risk appetite”.
SocGen — which will soon buy Commerzbank’s structured financial and investment products business, EMC, according to people familiar with the matter — is trying to increase its penetration with corporate clients, who make up just 35 per cent of its existing base, so that it is not so reliant on financial institutions. Mr Cabannes also hints that the bank could adjust its product focus to better fit the kind of market conditions that he blames for its poor first-quarter performance. “What we see today is you have more demand in flow products than in structured products,” he said. “So, that is a question but it’s not what we have really decided yet. Perhaps we can reweight a bit our flow activities compared to our structured product activities.” But he is cautious on whether such an adjustment would yield meaningful results, and sees the conditions of the first quarter as transitory rather than permanent, and as such has no plans for big shifts. “The problem we have is that the perception of investors takes time to be convinced,” he said. “For me it’s a very clear strategy we have continuously delivered and this strategy is still the same.”
Among analysts, scepticism remains high. “The first quarter was a watershed . . . Banks printed money in equity derivatives, SocGen was weak relative to US peers and BNP,” said one. “Fifteen years ago, I used to call it the Goldman Sachs of French banking, they had a bad quarter once every year, but their other three quarters more than made up for it.” Now, “there’s an opportunity for competitors to attack the franchise”. Citi analyst Azzurra Guelfi said first-quarter equities revenues were “a disappointment” and “management did not fully address market concerns in the call in explaining the reason for this weakness compared to peers”. “We are monitoring the development in the second quarter to assess if this was a particular weakness in the quarter,” she added. The investment bank’s attempts at reinvention find a kinder audience internally at SocGen, which is in the early stages of a three-year strategic plan to boost returns by cutting costs and accelerating a push into digital banking. “We are no longer what we were 10 years ago, a pure equity derivatives house,” said Philippe Heim, the bank’s deputy chief executive and international retail boss. “We were the nerds in that space and we developed the business . . . We had a great generation of guys inventing all the new products.” Now, said Mr Heim, “we managed to turn this platform that was purely focused on equity derivatives products into now a cross-asset derivative house.”
The scope of that revamped investment bank has been capped, since 2014, at 20 per cent of SocGen’s group-wide capital, reducing the likelihood that the whole of SocGen could ever be rocked by a scandal such as Jérôme Kerviel’s $7.2bn rogue trading spree. While there are no shortage of former SocGen insiders and rivals to question the bank’s recent performance, and its pedigree, it remains Emea’s third-biggest equities operator, behind only JPMorgan and Morgan Stanley. “Excellence is the clients’ perception. We have a great perception from the clients still,” said Mr Cabannes. “Ask the client, not the competition. They are necessarily negative. Don’t ask our former colleagues who left the company. They are frustrated.” One former colleague whose opinion could matter to Mr Cabannes and his colleagues is UniCredit’s Mr Mustier, who has been exploring a merger with SocGen. “Jean-Pierre Mustier represents a blessed era for SocGen and he’s a man who rebuilt himself after Kerviel, so it’s a double seduction,” said one person who worked with Mr Mustier at SocGen.
