Société Générale to set up joint venture with AllianceBernstein in cash equity – 22/11/2022 at 09:55

(AOF) – Société Générale and AllianceBernstein, an asset management and research firm, today announced plans to form a joint venture combining their cash equity and equity research businesses. Clients of the bank and Bernstein Research Services (corporates, financial institutions and institutional investors) would have access to a full range of world-class liquidity equity and research services, combined with Societe Generale’s current capital markets offering equity, equity derivatives and early service businesses.

The joint venture will provide investors with investment advice, insights into the US, European and Asia-Pacific stock markets, as well as unprecedented access to liquidity and cutting-edge execution technology.

The merged entities would combine complementary strengths and bring a common vision of a leading player in equity brokerage and research to meet the needs of investor and issuer clients.

Société Générale will acquire a 51% stake in the joint venture, with an option that will allow it to reach 100% after five years. The business, which will be based in London, will be run as a long-term partnership between its two partners under the Bernstein name.

Upon completion of the transaction, Robert van Brugge, currently Chief Executive Officer of Bernstein Research Services, would become Chief Executive Officer of the combined entity for an initial term of five years.

Stéphane Loiseau, currently director of the cash equity business of Société Générale, would become deputy general manager.

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Key points

– Bank born in 1864, one of the main European groups of financial services;

– Net banking income of €25.8 billion generated by retail banking in France – Société Générale, Crédit du Nord and Boursorama brands, international retail banking, financial services and insurance, then wholesale banking clients and solutions for investors;

– Business model that claims the vanguard of positive transformations: 100% digitized bank, open platforms and architectures, winner in the race for European leadership;

– Capital characterized by the presence of employee shareholders (6.65% and 11.9% of the voting rights), with a board of directors of 16 members chaired by Lorenzo Bini Smaghi, managing director Frédéric Oudéa;

– Solid balance sheet with, at the end of June, €64.6 billion of equity, a CET 1 ratio of 12.9%, a liquidity coverage ratio of 140%, a leverage ratio of 4.1%, ‘where a debt with an A rating.

Challenges

– Vision 2025 strategy, based on the merger with Crédit du Nord, local roots, responsiveness, adaptation to customer needs and responsibilities: annual revenue growth of at least 3%, cost/income ratio improvement of at least 62% and return on capital employed at 10% / target CET 1 ratio of 12%;

– Innovation strategy rooted in the group’s DNA, focused on the emergence of a data-driven bank via artificial intelligence: €200 million of value creation per year via data and AI / 8/10 servers in the cloud ( 2025 ‘2nd generation’ cloud targets including 50% private cloud and 25% public cloud / new business models – Shine for individual customers, Forge for digital obligations, reezocar for vehicle rental and treezor , payment platform and digital currencies;

– Environmental Strategy 2025 which aims to become the world leader in sustainable finance with 2 axes: integration of criteria in all activities: offer of 100% responsible savings, support for customers in their energy transition, etc. / sustainable transition commitment: funding increased to €300 million 10% reduction in overall exposure to oil and gas extraction, complete phase-out of thermal coal by 2030-40 and reserve-backed loans by 2023, or +€150 billion of assets in the energy transition;

– Continuation of the integration of Crédit du Nord, finalized in 2023;

– After the refocusing of activities, financial availability for refocusing on mobility (purchase of LeasePlan by the subsidiary ALD).

Challenges

– Equity per share of 67 euros, to be compared with the market price;

– welcome investors to the new CEO who succeeds Frédéric Oudéa;

– Impact of the Russia-Ukraine war: sale of the stake in Rosbank with an impact of 3.2 billion euros on the income statement, down to minus 640 million euros, with a consequent drop in the CET ratio to 12.9%;

– After a 15% increase in gross income and a 17% increase in operating income, targets for 2022, a strong increase in the cost/income ratio between 66 and 68% and a cost of risk down by 30 basis points;

– 50% distribution rate, including share program, and forecast of a 2022 dividend of €1.44.

The negative effects of rising interest rates

Rising interest rates usually cause an increase in bank revenues through loans. In Europe, according to a survey conducted by S&P of 85 banking institutions, the sector expects an average increase in net interest income of 18%. However, this new inflationary environment also has unintended effects, notably an increase in refinancing costs. This is also accompanied by the fear of a new recession, which would then affect all the bank’s activities, from loans to asset management, whose revenues are correlated to market valuations. Reassuring element: Eurozone banks are sound enough to deal with a deterioration in their environment.

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