Global Best Bank: Société Générale

Can Bouton’s unique vision drive SG forward?

Also shortlisted in this category:
Citigroup
Deutsche Bank

It’s about time that people started to take Société Générale seriously. This is, after all, the European bank that has produced the best return for shareholders of any major banking group on the continent in the past five years. It has more than doubled net income over the same period, from €2.154 billion to €4.446 billion. It has a corporate and investment bank producing return on equity after tax of almost 45% in 2005, and a healthy 25% group RoE in the same period.

Furthermore, this is a bank with world-class businesses in equity derivatives and securitization, two of the asset classes set to grow fastest over the coming years.

Meanwhile, Société Générale has diversified its retail banking business from the slow-growth French market to the high risk and high opportunity markets of emerging Europe.

It seems strange, therefore, that many outsiders still see Société Générale as a parochial French bank with a nice little earner in its equity derivatives business; a bank that never got over being left at the altar by Paribas, the bank that was supposed to complete it, but was instead whisked away to a shotgun wedding with Banque Nationale de Paris.

Daniel Bouton’s Société Générale has used its independence to its advantage

Under the leadership of its chairman and CEO, Daniel Bouton, Société Générale has used its independence to its advantage, putting together a strategy that leverages the steady income from its French retail banking network to build newer, high-growth and high-return businesses in emerging Europe and investment banking. Take central Europe as an example. SG first bought a stake in BRD Bank in Romania in 1999, and Komercni Banca in the Czech Republic in 2001. That year, international retail banking accounted for just €84 million of net income, with RoE of 17%. By the end of 2005, international retail generated €386 million, with RoE of 40%.

Bouton believes these are the growth markets for retail: economies where GDP growth is set to remain high but, as people come to understand financial services, growth in banking and related businesses such as savings and insurance will grow at accelerated levels. The highly competitive nature of French banking – where quality of service counts highly and can yield average product per customer levels as high as seven – stands SG in good stead to benefit from such growth.

For Bouton, however, Russia is the most exciting market to be in. Before June this year, SG was already one of the largest overseas financial services companies in the country, with 4,700 employees in its bank network, SG Vostok, and its consumer finance business, Rusfinance. The acquisition last month of a 10% stake in Rosbank, Russia’s second-largest bank, (with an option to acquire a further 10%) has been hailed as a masterstroke, giving SG critical mass in a key growth market.

In investment banking, Bouton made a tough decision at the turn of the decade that there was little future in having a global investment bank that was on a small scale everywhere. Instead, he chose to concentrate on becoming a first-class operation in areas and businesses where SG corporate and investment bank could make a difference.

Under the leadership of CIB chief executive Jean-Pierre Mustier, SG has scored notable successes; not least in equity derivatives, where SG is the clear market leader. Equity derivatives alone account for about €2 billion of revenues.

Not only that, but SG continues to be a leading global player in traditional structured finance businesses such as project, trade and export finance that other banks gave up long ago. In securitization, the bank has become one of the leading underwriters of asset-backed deals denominated in euro. This has helped feed a steady growth in market share in international bond underwriting, from 2.9% in 2001 to 5.9% in 2005. The investment bank’s balanced business mix (two-thirds client related, one-third trading) has generated a recurrently high RoE, more than 30% for the past three years. It also has one of the lowest cost-income ratios in the industry, at 58.3% in 2005.

Add in positions as one of the world’s largest fund of hedge funds managers through Lyxor, a burgeoning asset management business that is also one of the leaders in CDO structuring, and a growing private banking business, and the Société Générale model begins to look more than the sum of its parts.

But perhaps the most distinctive thing about SG is the way its retail and investment banks are intertwined: the latter, in many respects, is founded in the strengths of the former. Managers from both sides of the business work closely together, with little of the conflict seen in many other universal banks. That, perhaps, is Bouton’s most noteworthy achievement.

Tags Awards Asia Pacific Awards for Excellence Banking Capital Markets Emerging Europe Emerging Markets Middle East and Africa Societe Generale Surveys and Awards

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