The French bank has already raised more than €1.5 billion (US$1.7 billion) from developing alternative products.
Société Générale has reported a gradual recovery in equity structured product revenues in the third quarter of 2020, while benefitting from a ‘good performance’ of listed products.
The group completed a strategic review carried out in its global markets business on structured products, and in that context, has confirmed its ambition to maintain its global leadership role in equity structured products and to stay a major player in investment solutions.
While Société Générale is reducing the risk profile on equity and credit structured products, the bank is not abandoning autocalls. It is redesigning its product range to decrease the sensitivity of its revenues to market dislocations.
The objective is to have less exposure to those types of complex autocallables
"Societe Generale’s leadership in equity structured activities has always been geared towards innovation, structuring capabilities and proximity with clients to design the best suited solutions,” Jean-François Grégoire (pictured), head of global markets, told SRP. “The objective is to have less exposure to those types of complex autocallables with such correlation, volatility and dividend exposure by further developing alternative products.”
One such alternative product designed by the bank is a series of structures linked to the Solys Euro Evolution I Fund in France, of which the first product was launched in October 2019. Since then, there have been 164 structures tied to the fund (including 31 this quarter), according to SRP data, with combined sales of more than €1.5 billion.
“Recent innovations like ‘Euro Evolution’ fund or ‘new PDI’ are game changers in term of risk profile for investors, like all the fixed decrements have been since 2014,” Grégoire said, adding that the bank will continue to invest in this direction as well as continue developing its investment solutions franchise by providing clients with structured solutions on rates, FX, and credit to bring them "a lot of value”.
In the quarter, Société Générale became the number one issuer in public distribution products in Germany for the first time following the integration of Commerzbank’s equity markets and commodities (EMC) business. Volumes traded on German exchanges reached €660m in September 2020, a 14.15% share of the market, according to figures from the German Derivatives Association (Deutscher Derivate Verband - DDV).
The acquisition and integration of EMC activities has also provided a way to develop the bank’s market franchise on the flow investments solutions, in particular in listed products and ETF market marking, according to Grégoire.
“The Group has started to amend the business mix of its market activities while still leveraging on its equity derivatives strength,” he said.
The French bank has reported the issuance of over 143,000 listed products in Q3 20 of which 36,300 where investment products including bonus, discount, reverse convertibles, and trackers; and 107,400 leveraged instruments including vanilla warrants, turbo warrants, and factor warrants.
SRP data
The bank issued 34,385 flow products, such as discount and (capped) bonus certificates, and 26,180 leverage certificates in Germany during the quarter (Q3 2019: 20,385 and 30,038, respectively). On top of that, 61,441 open-ended turbo certificates were issued by SG in the period (Q3 2019: 24,975), according to SRP data relating to public offerings only.
In France, the bank sold 113 structured products worth approximately €500m (Q3 2019: €1.3 billion from 192 products). The products, of which 96% were autocalls, were distributed, among others, via Adequity, DS Investment Solutions, Finaval Conseil and Oddo & Cie. They included 61 structures linked to a single index, of which the Euro iStoxx Equal Weight Constant 50 – seen in 21 products – was the most frequently used, followed by Euronext Euro 50 ESG EW Decrement 50 Points Index (10).
A further 17 products were tied to a single share, including Crédit Agricole (three products) and Bouygues (two) while another 31 products were linked to a mutual fund (the afore mentioned Solys Euro Evolution I Fund).
Other European markets where the bank was active were Italy (€35m from 19 products), the UK (£16m (€17.8m from 10 products), Benelux, Germany, the Nordics, Switzerland and Spain.
Outside Europe, it was the manufacturer behind 360 private placements targeted at investors in Taiwan (US$1.3 billion). In Japan, the bank issued 13 products (US$240m) which were distributed via local securities firms while in Hong Kong SAR it launched 1,694 warrants and callable bull bear certificates (US$400m).
Divisional breakdown
In global markets & investor services, net banking income totaled €1.2 billion, up 4.5% compared to the prior year period.
The fixed income & currencies unit delivered revenues of €569m, up 9.4% compared to Q3 2019. The solid Q3 performance was driven in particular by healthy activity with European corporate clients, higher revenues in the Americas region and in flow & hedging activities, according to the bank.
There was a sharp rebound in equity activities, with net banking income 3.7 times higher than in Q2 2020, and up 5.1% versus Q3 2019. Flow & hedging activities performed well in Q3, and the Asia and Americas regions enjoyed strong volumes.
As of 30 September 2020, the group’s consolidated balance sheet included debt securities issued of €133.1 billion (end-December: €125.2 billion) and an outstanding for hedging derivatives of €12.4 billion (€10.2 billion).
Ninety-six percent of the vanilla funding programme achieved at the parent company level was completed, with the group stating ‘good funding conditions’. As of 16 October 2020, €14.8 billion worth of structured notes has been issued by the bank, with an additional €1.1 billion issued by subsidiaries.
Click the link to read the full third quarter results and the presentation.