National barriers hurting European champions, says Société Générale’s Oudéa

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By:
Dominic O’Neill
Published on:

SocGen CEO and European Banking Federation head says US-style continental franchises can emerge, but only after more integration of banking and capital markets has paved the way.

Europe’s financial markets must further integrate, and its banks must spend years adopting regulatory changes, before mergers can build pan-eurozone universal banks, according to Société Générale CEO Frédéric Oudéa.

SG Chief executive Frédéric Oudéa

Frédéric Oudéa,
Société Générale

Speaking in an interview that will be published in Euromoney’s February edition, Oudéa – who is also president of the European Banking Federation – says SocGen envisages another three years to tackle regulatory, technological and macro-economic changes.

However, he says European banks that properly adapt could later embark on mergers that will be more successful than the ill-fated mega-deals that took place in the run up to 2008.

He says: “Beyond 2020 … you might perhaps enter more of a consolidation phase in the banking sector in Europe, but you will do that, I think, with a peer regulatory framework. Banks which will have done their homework, including on the retail side, will probably be more able to manage these transactions, than the ones that did it before the crisis.”

One caveat he gives, however, is the uncertain direction of European Union policy in the post-Brexit era.

Rumours of a merger between SocGen and UniCredit have revived since Jean-Pierre Mustier, SocGen’s former head of corporate and investment banking, became CEO of Italy’s biggest bank last summer.

Today, UniCredit is the only bank with a top position in more than one of the big eurozone economies. A merger with SocGen – France’s second-biggest lender, and a stronger investment bank -– could create the first real eurozone leader.

On the prospects for a transformational merger with another big European lender, Oudéa says: “It’s not at all in my agenda. If I look at the next two to three years, the priority is still fundamentally to organically enhance our businesses and digest all these changes.”

However, Oudéa agrees with an assertion that pan-European champions are needed to fend off the advance of US investment banks, even if this happens decades from now.

“You should have more integration, more integrated capital markets in Europe,” he says. “For example, you should have money from Germany moving more easily to finance projects in France or Italy, than is currently the case. In the next 10 to 15 years, I hope to see a change of the landscape, but in Europe things will take time.”

Cross-border impediments

His view takes into account impediments to cross-border capital flows in Europe today that are sometimes specific to individual country’s banking sectors, such as Germany. The US, on the other hand, is a much more integrated and profitable capital market.

The persistence of predominantly national markets for retail banking within the eurozone is another barrier to mergers, as most of Europe’s biggest investment banks are also large retail lenders.

Oudéa says: “Yes, you can have synergies in certain activities, but at this stage, on the retail side, I don’t think cross-border consolidation would makes sense in terms of synergies. In five or 10 years’ time, when digital technology will have further developed, this could be different.”

He gives the example a pact between SocGen and its French trade unions in 2016 which allows what he calls “the most significant transformation of the French networks ever seen”, including a 20% branch-network reduction.

He says: “I do not see, at all, the added value that any external partner could have brought to us to deal with that.”