Derivatives Dynamo Societe Generale Seeks to Make M&A Inroads
May 19, 2011, 7:55 PM EDTBy Jacqueline Simmons
May 20 (Bloomberg) -- Societe Generale SA, the world’s leader in equity derivatives, is striking into a business the French bank once eschewed for its paltrier profits: mergers and acquisitions.
The Paris-based lender added 15 senior M&A executives since June and plans hires in places including Turkey and the Middle East as it seeks be among the top 10 merger advisers in Europe by 2015, said Thierry Aulagnon, 60, head of coverage and investment banking, in an interview in Paris.
The push into M&A comes in anticipation of new regulations expected to impose stricter capital requirements on banks after the raft of government bailouts during the financial crisis. Societe Generale, which suffered a record trading loss from unauthorized bets by Jerome Kerviel in 2008 and accumulated more than 11 billion euros ($16 billion) of losses during the crisis, is seeking to expand into less capital-intensive businesses. It generates about two-thirds of corporate and investment banking revenue from global markets, which includes sales and trading of equities, fixed-income, currencies and commodities.
“M&A is one of our key ambitions within investment banking,” Aulagnon said in an interview at SocGen’s headquarters in Paris’s La Defense financial district. “The development of investment banking is a response to the changing banking environment and the relationships we develop with clients.”
Hiring Bankers
Societe Generale in September hired Hubert Preschez, 40, a former JPMorgan Chase & Co. banker who in April was named to run French M&A. Jan Sanders, 42, and Francois Vigne, 41, joined in November, covering metals and mining and construction and building materials, respectively. Those recruits came after the hiring of former Credit Suisse Group AG banker Stefan Goetz, 47, and Axel Malkomes, 45, from 3i Group Plc as well as Daniel Weisslinger, 46, from BNP Paribas SA and Luis Zubillaga, 43, from JPMorgan.
Those recruits have helped catapult the French bank to ninth in European M&A this year, up from 32nd four years ago, according to data compiled by Bloomberg. The bank is an adviser to Deutsche Boerse AG on its $9.5 billion bid for NYSE Euronext and is working with Groupe Lactalis on its 3.65 billion-euro unsolicited bid for the rest of Parmalat SpA.
“Everyone wants to expand in fee-based, balance-sheet- light businesses that don’t tie in much capital,” said Jorge Mayo, an analyst at RBS Global Banking & Markets in London. “SG has been hiring selectively in M&A but evidence of market-share gains seem limited.”
M&A Revenue
Banks typically derive a small portion of earnings from mergers and acquisitions advice, although the business brings prestige and relationships with chief executive officers. Less than 6 percent of last year’s total investment banking revenue came from M&A at New York-based Morgan Stanley, Goldman Sachs Group Inc. and JPMorgan.
In France it ranks first this year, compared with third for all of 2010, according to data compiled by Bloomberg. Globally, Societe Generale ranks 14th.
In the past year, Societe Generale has worked on about $102 billion of deals and deployed its balance sheet on transactions including Sanofi SA’s purchase of Cambridge, Massachusetts-based Genzyme Corp., the largest maker of medicines for rare genetic disorders, for about $20 billion. The French bank is also providing funding to Lactalis, France’s largest maker of cheese.
“We hardly had teams outside of France two or three years ago,” said Thierry d’Argent, 45, head of global M&A at Societe Generale. “Volume is up and we’re on more significant deals than we’ve ever worked on and ones you wouldn’t have seen us on years ago and we are increasing our share.”
Profit Goal
Societe Generale, which makes about half of its earnings from consumer banking, aims to earn 6 billion euros of annual profit next year, compared with 3.9 billion euros last year. The bank has said it’s on course to reach its goal. And while the contribution of M&A may be slight, Societe Generale is pressing ahead.
“We have been strong in equity derivatives and structured finance, where we’re leaders, but it’s the other areas -- investment banking, including M&A, that we have been developing further,” Aulagnon said.
Societe Generale won IFR’s equity derivatives house of the year award for 2010, according to a December statement on the bank’s Web site.
--Editors: Katherine Snyder, Frank Connelly
To contact the reporter on this story: Jacqueline Simmons in Paris at jackiem@bloomberg.net;
To contact the editor responsible for this story: Katherine Snyder at ksnyder@bloomberg.net
