Many banks are reluctant to spell out how they make money in derivatives but SG's black box is even blacker than most. "It's very difficult for us to understand where it gets its money from," admits Eric Hazart, an analyst at Exane in Paris.
It's clear, though, that SG makes a lot of its money from equity derivatives. Analysts estimate that this counts for between 70% and 80% of the equity and advisory division's income. According to a source who knows the business well, at the peak of its profitability in 2000 equity derivatives was responsible for 32% of the net profits of Société Générale worldwide.
What started in 1984 as a six-man unit under Antoine Paille, that had to persuade investors to take the first warrants it issued, has mushroomed into a group employing 525 people. It's divided into 35 business units, each with its own P&L, targets and staff. "This has allowed us to do two things," explains Jean-Pierre Mustier, SG's CEO. "First, there is a great entrepreneurial spirit among all our managers and secondly we have been able to grow these businesses with a limited amount of risk and the ability to perform without too much correlation between them."