People

&Markets

„ FRONT STORY STRATEGY

SG snaps up Commerzbank unit

French bank buys structured equity platform to expand in Germany

SOCIETE GENERALE has become the latest
French bank to train its sights on Germany
and seek growth in its European neighbour.
SG has agreed to buy the structured equity
and commodities investment business of
COMMERZBANK for an undisclosed price, 21
months after the unit was effectively put up
for sale by the German bank.
Commerzbank chief executive Martin Zielke
deemed the operations non-core in October
2016 when he unveiled his strategy for the
group. They were rolled into one reporting line
called Equity Markets and Commodities, under
derivatives banker Roberto Vila-Freyer.
SG has had a slight setback in this area
LATELYûnûlRST
QUARTERûEQUITIESûREVENUESûFELLû
11% year-on-year to €659m, worse than most
peers, so the deal will bolster its presence in
THEûSECTORû)TûISûALSOûANûACTIVEûlNANCIERûOFû
commodities businesses and the trading
unit will complement that.
The sale does not include Commerzbank’s
equity capital markets and equity trading and
sales teams. It is principally structured equity
products and exchange-traded funds that are
being divested, and includes 520 staff. They
will sit alongside SG’s Lyxor ETF business.
SG deputy chief executive Severin
Cabannes, who was put in charge of the
group’s investment banking businesses in
May after Didier Valet resigned, said the deal
would be “transformational for our
activities in Germany”.
The move may make SG less attractive to
UniCredit, a long-rumoured potential suitor.
UniCredit already has a strong presence in
Germany through its HVB subsidiary.
SG’s move comes after Philippe
"ORDENAVEûCHIEFûOPERATINGûOFlCERûOFûRIVALû
BNP Paribas, told IFR that Germany was an
essential market for the bank as he laid out
plans for “doing much more” in the country.

BNPP said it was planning to do so in a

light-touch manner by building on its

network originally acquired from Fortis in

2008, rather than making a major

acquisition.

RISK TRANSFER

SG’s deal will see all of the business’s trading

books, staff and IT infrastructure cross over

to the French bank along with its roster of

clients. Commerzbank said this would take

place “gradually” and only start at the end of

this year, after all legal approvals had been

secured.

“EMC revenues are expected to fade out in

THEûPROlTûANDûLOSSûSTATEMENTûOFû

Commerzbank during 2019,” said the

German lender. It added that by the end of

2020 its costs would be cut by at least

€200m. (See chart.)

SG declined to comment on what

synergies could be made.

Commerzbank said it had already got rid

of €3bn of risk-weighted assets linked to its

lXEDûINCOMEûCURRENCIESûANDûCOMMODITIESû

positions since Zielke’s strategy was

published and said this sale would help

that process.

ECM and equities trading remain with

Commerzbank’s corporate clients unit

under divisional head Michael Reuther, as

does commodity hedging.

,ASTûYEARûTHEûUNITûWHICHûHASûOFlCESûINû

Frankfurt, London, Paris, Luxembourg,

Zurich and Hong Kong, made €381m of

REVENUESû(OWEVERûTHEûlRSTûQUARTERûTHISûYEARû

was weaker, with revenues excluding

exceptional items falling 18% year-on-year to

€97m as demand for structured products fell.

Nicholas Herman, analyst at Citigroup,

SAIDûTHEûBUSINESSûWASûPROlTABLEûWITHû

annual costs below €300m, and made

returns on tangible equity of more than 30%.

SG said the deal would “result in a positive

impact on the group’s ROTE” and would not

affect its common equity Tier 1 ratio.

(ERMANûFORECASTûPOTENTIALûBENElTûOFû

around €150m annually, assuming cost

savings of 25%. “The transaction should give

SG more exposure to Germany and could

support growth in GBIS [global banking and

investor solutions] revenues, where the

market is most concerned,” he said.

UBS analyst Lorraine Quoirez said it

would allow SG “to consolidate market

share in its core businesses at a reasonable

price”.

Ratings agency S&P said the deal would

not affect SG’s ratings and should have a

positive impact on its returns.

Germany remains at the heart of potential

M&A activity in European banking. Late last

week a German magazine said JP Morgan

and the Industrial and Commercial Bank of

China had been considering buying stakes

in Deutsche Bank. The US bank denied it

was interested in doing this.

Christopher Spink

17

John Dabbs

is named

global head of prime

brokerage at Credit

Suisse, including

overseeing capital

services and consulting

16

Bellwether

finds analysis

showing trading

volumes slump and

execution costs rise

during World Cup

matches. So relax...

14

A handful

of start-ups

planning to shake up

debt issuance by using

blockchain are chosen

to test their ideas in a

live market

Source: Commerzbank

Net capital release

RWA release

Cost reduction

Revenue fade-out

€300m-

€400m

€200m-

€300m

>€6bn

>€500m

COMMERZBANK SHRINKS

SALE OF EMC CONFIRMS TARGETS TO CUT TRADING

ACTIVITIES