"Why my money is on BNP Paribas for 2020"
If you've ever had anything to do with a French bank, you'll be very aware of the rivalry between BNP Paribas and Société Générale. Both banks are continuously looking at what the other is doing, to the extent that I've even known internal management meetings about the rival's strategy.
It's an interesting battle. Paribas has always been the larger of the two, but SG is dominant in niche areas like equity derivatives. As someone with what might be called a vested interest in BNP Paribas, I'd say that the bigger French bank is now pulling away.
BNP's global markets division has benefited from uninterrupted leadership under Olivier Osty for five years running. By comparison. SocGen welcomed its third head of markets in as many years at the start of 2019, in the form of Jean-François Grégoire. However, it is their German acquisitions which really underscore the two banks' divergent situations.
BNP Paribas has made an ambitious move by acquiring Deutsche Bank's prime brokerage unit, which it says will add €400m in revenues over a full year once completed. SocGen also made its own Frankfurt-based deal this year with its purchase of Commerzbank’s equity and commodities business in an effort to boost its ETF franchise among other things. BNP's move seems the most significant.
BNP's Deutsche Bank deal is guaranteed of success: Deutsche Bank experienced $80bn in hedge fund redemptions post the announcement. However, it's a very important statement of intent. What it says is that BNP still aims to be a large and relevant global player to its client-base, and to deliver a diverse revenue stream to its shareholders.
By comparison, SocGen's Commerzbank acquisition simply seems to deepen its focus on its retail structured product business and to bulk-up its European ETF footprint (largely to the benefit of its subsidiary Lyxor). SocGen going increasingly niche as BNP diversifies.
By 2021, the two banks will be in very different places. Paribas will have assimilated up to 1,000 highly-skilled Deutsche Bank staff from all over the world, and will receive a boost in a business it historically struggled in. At SG, meanwhile, it's not clear how many Commerzbank employees outside of Germany will retain a seat. The unit is being integrated but has yet to contribute positively to revenues.
Will SocGen decide to do something dramatic? When an SG-UniCredit merger was first rumored a couple of years ago, several senior SG staffers couldn't contain their laughter. Fast forward to today, however, and with a UniCredit market capitalization almost 1.3x larger than that of SG’s, it's perhaps the UniCredit bankers who should be laughing. Maybe SocGen should reconsider?
Bonne chance, I say! It's time for SocGen to put the Jerome Kerviel scandal behind it. The junior delta one trader still seems to haunt the bank in everything from e-learning modules, to risk appetite. Focus on growth and keeping staff happy, especially in the U.S. markets division, which has seen departures. 2020 could be a big year for both big French banks, but personally I think BNP Paribas is positioned to pull away further.
Bertand Huang is the pseudonym of a senior banker
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