Is SocGen just massively behind the curve?
Yesterday, SocGen made a presentation about its intentions for the future.
The revelations? It's been massively outperforming its peer group, it wants to build its fixed income and M&A franchise, and it wants to develop its investment banking activities in Central and Eastern Europe and Russia.
At first sight, these are all worthy claims and aims. Upon consideration, however, they start to look slightly sketchy.
Peer group outperformance?
SocGen's claims to be outperforming its peer group are based on the graph below, depicting (for those who can't see it), net income growth in the investment bank of 47% between 2007 and 2009, versus a peer group average of 24%.
However, SocGen's pretensions to outperformance are questionable based on a) its unusually low net income in 2007 (see the chart below, showing net income at the bank - also from the presentation), and b) its failure to include writedowns in its income calculations.
(Shaded areas represent legacy assets.)
Recruiting behind the curve?
Meanwhile, SocGen's timing looks slightly awry when it comes to recruitment.
As the bank has declared previously, it intends to recruit 600-1,200 people for its fixed income division this year, as part of its plan to, 'leverage the solid European client franchise to further develop fixed income and investment banking.'
However, there are signs that fixed income is already going off the boil. Morgan Stanley has confessed to higher than anticipated losses in April and May, and although rates and FX are still epically strong, credit businesses have taken a dive. Equally, after a long period of strong FICC revenues, fixed income professionals are unlikely to come cheaply.
The same is the case in Russia and CEE, where hiring has picked up substantially over the past six months. If SocGen wants to build its franchise in the region now, it will need to pay handsomely for staff.
At the same time, the all-important SG equities business may be faltering. According to yesterday's presentation, performance there 'mixed' was in the second quarter, due to 'reduced risk appetite in volatile market conditions.'
With hindsight, SocGen may yet come to wish it had diversified its business in 2008 and early 2009. The costs of doing so would have been considerably lower if it had.
