Societe Generale has reported strong demand for structured products which, despite calm financial markets, delivered good performances in the second quarter of 2017.
The bank's net banking income for the second quarter of 2017, at €6.9bn, remained stable compared to the same period last year with substantial growth in international retail banking & financial services offsetting the decline in global banking & investor solutions.
Net banking income in the global markets & investor services business unit amounted to €1.5bn in the second quarter, down 3.1% from 2Q 2016 but up 2.6%, at €3.2bn in the first half of 2017 versus H1 2016. While global markets ended the quarter higher, Q2 was marked primarily by the widespread "wait-and-see" attitude of investors, in conjunction with ever lower volatility and a weaker dollar, according to the bank.
Equities' net banking income fell by 3.3% in the second quarter vs Q2 16 to €549m (+0.3% in H1 2017 versus H1 2016). In still rising markets, there was further confirmation of investor appetite for structured products with, according to the bank, in particular strong demand in Europe.
Equities posted its highest revenues since the first half of 2015. Flow products continued to experience limited activity, in conjunction with very low volatility, leading to a drop in volumes, primarily on flow derivatives and cash.
At €586m, net banking income of fixed income, currencies & commodities (FICC) experienced a moderate decline of 6.8% compared to the second quarter of 2016 but was up 3.4% in H1 2017. In a less active market, structure products delivered an excellent performance, according to the bank, with revenues also at their highest level since H1 2015. In contrast, flow product revenues were lower, particularly on rates, impacted by low volatility and reduced primary market activity.
Societe Generale's long term parent company 2017 funding programme, at €24.1bn, included €17.1bn of structured notes. As at July 19, 2017, 75% (€18.1bn, including 65% of structured notes) of the long term funding was completed with the bank reporting competitive funding conditions and an average maturity of five-years. According to the bank, landmark issuance in the second quarter of 2017 included a AUD500m 10-year Bullet Tier 2 & AUD150m TAP (the largest Australian dollar denominated subordinated transaction issued by a non-Australian issuer in recent years); €1b seven-year Floating Rate Note (FRN) senior non-preferred (the longest FRN ever done in senior non-preferred format); dual tranche JPY37.6bn five-year and JPY42.4bn 10-year senior non-preferred; and €750m eight-year bullet covered bond.
Societe Generale issued 14,879 structured products across 13 different jurisdictions in the second quarter of 2017, down from 17,850 products across 14 jurisdictions in the same period last year, according to SRP data.
The vast majority (14,171 products) were listed leverage and flow certificates which were issued in the German market. In France, were Societe Generale saw its sales volumes increase by 95%, from €944m in 2Q16 to €1.9bn in the second quarter of this year, the bank's 54 products were distributed via, among other, Adequity, Cyrus Conseil, Derivatives Capital, DS Investment Solutions, Equitim, i-Kapital, Irbis Finance, LinXea, MMA Assurances and Swiss Life Banque Privée.
In Sweden, Societe Generale was the issuing company behind 28 structured notes, which were launched in collaboration with Erik Penser, Exceed, Garantum, Mangold, Skandia and Strukturinvest, respectively. Other European markets were the bank had a presence were the UK (19 products), Italy (10), Belgium and Finland (four each), Hungary (two) and in Spain were SG was the manufacturer for AXA Best Selection abril 2017, a five-year 95% structured fund linked to the Best Selection Index.
In the Asia-Pacific region, Societe Generale issued 525 products - predominately leverage certificates linked to the Hang Seng Index - in Hong Kong, 55 products in Taiwan and 10 products in Japan.
In a mixed economic and financial environment, Societe Generale posted sound Q2 results, confirming the good commercial and operating performances achieved by the businesses at the beginning of the year and the relevance of its diversified and integrated banking model,' said Frédéric Oudéa (pictured), chief exectutive officer, in a statement. '[...] revenues were driven in particular by the growth in international retail banking & financial services, while profitability increased due to cost and risk control,' he said.
Click the link to view the full Societe Generale second quarter 2017 results and the presentation.
Related stories:
Natixis reports 12% rise in core business revenues, structured products sales up by 78%