Shocked by the sudden withdrawal of short-term dollar funding from US money-market funds 18 months ago, Société Générale has moved quickly to rein in businesses that depended on it, especially in the US and Asia, and to concentrate scarce resources on its European clients. It has also reoriented the financing business inside a corporate and investment bank that accounts for roughly one-third of the whole group’s allocated equity and a similar portion of its profits. Is that the right size to avoid undue pressure from regulators and investors?
According to European bank analysts at Citi, "SocGen management expects reform proposals around ‘speculative’ activities (prop trading, high-frequency trading) to be manageable". And shareholders may think a CIB division of that size does not over-expose them to the volatility inherent in investment bank earnings.
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| Didier Valet, head of CIB at Société Générale |
Didier Valet, head of CIB at the French bank, says: "The view of management and the board is that one third is large enough for us to compete and for our investors to capture returns and growth. We cannot be in the top tier everywhere, but we want to anchor our CIB in the top three investment banks headquartered in the eurozone."
