The French banking group unveiled earlier this month the medium-term strategy for its global banking & investor solutions core business and its goal to consolidate its position as a top-tier European corporate and investment bank, and structured products manufacturer.
Société Générale’s (SG) roadmap has set three priorities including reviving ‘strong and sustainable growth while making targeted and balanced capital allocation adjustments in favour of financing, advisory and transaction banking; pushing ahead with cost reductions ‘to improve the operating leverage’; and tighter risk management to be ‘less sensitive to market dislocations’.
The bank’s investment solutions division which houses the structured products team has been a key business for SG these last 25 years and remains a core franchise, according to Frédéric Despagne (pictured), European head of investment solutions, equity & fixed income.
“We’ll keep on investing in innovation,” he said. “It’s in our DNA. We want to keep on working with our clients to develop and pioneer the main European trends.”
The change of strategy last year only affected to a small proportion of the global wallet - Frédéric Despagne
The announcement of the new strategy is a continuation of the work the bank has done over the last few months to revamp its product offering by reducing or halting the products generating trading volatility and hedging costs.
“The change of strategy last year only affected a small proportion of the global wallet,” said Despagne. “The new strategy will enable us to lower the risk on our trading books and focus on products that are easier to manage from a risk perspective.”
From a client and business perspective, there will be no changes as the plan is to strengthen the bank’s market share and continue to leverage its cross-asset capabilities to respond to client needs.
“We will continue to be competitive and aggressive on the products that make sense in the current environment, and we want to have a comprehensive catalogue for clients to be able to diversify their portfolios,” said Despagne. “We think it is important to adapt the offering every year as market conditions vary and you have to be able to extract value from different market cycles.”
The numbers
From a financial standpoint, global banking and investor solutions is targeting profitability on normative equity (RONE) of over 10% from 2023, representing more than 12% when adjusted for the Single Resolution Fund contribution, whose initial building phase is to be completed by the end of 2023.
The French group is also seeking to lock in average annual revenue growth of approximately three percent between 2020 and 2023 for the financing & advisory businesses, and normalise revenues in global markets and investor solutions to around €5 billion in 2023, of which €4.5 billion in annual run-rate revenues is expected from global markets.
Investment in technologies and digitalising businesses and processes remain at the top of SG’s priorities ‘to meet customer requirements and retain our competitive edge’. This include the ongoing automation of front-to-back processes and increased connectivity with client systems to provide best execution to customers and enhance process efficiency.
“We will continue to invest on our digital tools as our SG Market platform has become a key offering of our franchise,” said Despagne. “We’ll keep on developing our connectivity to serve our clients the best way possible and to keep our leadership in automation.”
Tied in with this objective is SG’s focus to reduce costs and improve the operating leverage of global markets and investor solutions’ activities ‘to maintain a positive jaws effect between evolving costs and revenues’.
Global banking and investor solutions, excluding asset and wealth management businesses, will see a reduction in the cost base of €450 million by 2022-2023, announced in the first half of 2020. The division is targeting a cost base of between €5.5 billion and €5.7 billion in 2023 - generating a cost-to-income ratio of between 70% and 73% (or between 65% and 68% excluding single resolution fund contribution).
ESG focus
SG also intends to increase its ESG commitments and hold a top-ranking position in this field – the bank plans to make this ‘major strategic pillar the bedrock underpinning both the corporate and investment banking arm’s actions and those of the entire Group’.
The bank announced earlier this month that since 2019, nearly €550m of positive impact structured notes linked to indices such as the Euronext Euro 50 ESG EW Decrement 50 Points index that include contributions to reforestation projects in France, Côte d'Ivoire, Colombia and Indonesia, have been subscribed through SG’s banking networks.
Through these reforestation support notes, SG commits to paying 0.10% per year of the total amount of securities actually placed to its partner PUR Projet, a social enterprise that is a pioneer in the operation of community-based agroforestry and reforestation projects that can reverse climate change, fight against biodiversity erosion and stem deforestation.
ESG will be at the centre of developments either from a wrapper, index or positive impact approach going forward.
“We want to leverage our index business as it allows us to offer customised solutions – autocall, option-based strategies, actively managed certificates etc,” said Despagne. “We believe product diversification is very important and have plans to develop new FX, rates, and credit structures too.”