The most precarious jobs in French banking?

If you want to mitigate climate change, you might want to work for Frédéric Oudéa at SocGen. Not only does Oudéa have a reputation for being a thoroughly nice man, but under his leadership SocGen claims to be the worldwide leader in climate action. As a measure of the bank’s commitment to the issue, slide two in yesterday’s investor presentation was devoted to it.

While SocGen is working hard to mitigate climate risk, however, muttering is afoot that the French bank might have some other risks of its own. As rivals everywhere reconsider their commitment to cash equities, some are questioning whether SocGen might yet do the same.

Yesterday’s results weren’t reassuring. Revenues in SocGen’s equities division were down 20% year-on-year in the third quarter on what the bank described as, “lower client activity [and] adverse market conditions in August.” This wasn’t the worst performance in the market – HSBC’s equities revenues were down 27% year-on-year over the same period, but then HSBC is said to be contemplating the closure of cash equities in Europe and the U.S...

SocGen’s equities business is in the awkward second tier also occupied by the likes of Credit Suisse, Barclays and BNP Paribas, each of which have global market shares of approximately six per cent according to analysts at KBW. As revenues shift towards market leaders (Goldman Sachs, JPMorgan and Morgan Stanley), players like SocGen are increasingly squeezed.

Cash equities staff at SocGen look vulnerable for an additional reason though. Much of SocGen’s position in equities as a whole is due to its exemplary equity derivatives business, which ranks third globally according to research firm Coalition. By comparison, the cash equities business at the French bank ranks somewhere between seventh and ninth. If you’re a SocGen executive looking for costs to cut, the cash equities business could look a lot like low hanging fruit.

For the moment, there's little sign of cuts. Instead, SocGen has doubled down on equities following last year's acquisition of Commerzbank's Equity Markets & Commodities (EMC) business. The French bank said yesterday that EMC is being "integrated" with the existing equities franchise, without - seemingly - any positive revenue impact, yet.

SocGen is cost cutting. It intends to extract €1.1bn from costs by 2020, and has closed its over-the-counter commodity derivatives business. 55% of the cuts are done, and in an indication that the cuts are fundamentally about headcount, SocGen said yesterday that 55% of its 800 voluntary redundancies are now complete. 

How many equities professionals put their hands up to leave? SocGen doesn't breakdown redundancies by divison, but it’s questionable how many of its cash equities people will voluntarily make themselves redundant in the current market. – Unless of course they decide to avail themselves of SocGen's generous terms to escape the French bank's notoriously long notice periods. 

It’s not all gloom in SocGen’s equities division. In the first nine months of 2019 as a whole, revenues were down less than 1%, compared to a far bigger 20% drop at BNP Paribas. Moreover divisional costs in SG equities seem under control, with SocGen’s equities professionals being as efficient as rivals according to research firm Tricumen.

If anything, Tricumen's analysis suggested SocGen's fixed income salespeople and traders are most at risk from cuts due to inefficiency. They too may want to watch their backs.  SocGen’s fixed income revenues were up 1% in the third quarter, compared to a 24% rise at French rival BNP Paribas. SG blamed the slow growth on lost revenues after restructuring. It won't have that excuse soon.

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