Societe Generale Private Banking (SGPB): Critical Mass in its Core Locations

In the six years since Jean-François Mazaud’s appointment as its chief executive, Societe Generale Private Banking (SGPB) has undergone a fundamental transformation. As recently as 2012, Mazaud explains, SGPB remained a relatively small player in its home market, France, and maintained an extensive and costly international network with a presence throughout Asia, the Middle East and the Americas, as well as in several locations in Europe.

“In 2012, we reached the conclusion that the world of private banking was changing,” Mazaud explains. “We decided that although we had built excellent client relationships throughout the world, in order to extend our client base we needed to leverage synergies by achieving critical mass in the regions where the parent bank was most active.”

At the same time, says Mazaud, SGPB correctly identified regulatory change and the requirement to bolster investment in technological innovation as the elements that would drive rising cost pressures across the private banking industry worldwide. “Back in 2012 we were still at the embryonic stage of digitalization,” he explains. “But we recognized that we would need to increase investment in developing our front office applications in order to be able to offer our clients a full suite of solutions in digital format within years rather than decades.” 

SGPB responded decisively to the changes sweeping across the global private banking industry by divesting its outlets outside Europe. It also restructured its Swiss operations by closing its branches in cities such as Lugano and Lausanne, while strengthening its operations in the core centres of Geneva and Zurich. 

While Mazaud acknowledges that economic growth is supporting increased demand for private banking services in a number of Asian markets, he says he has no regrets about withdrawing from the region, for several reasons. One is that while economic growth in Asia remains robust, the rate of expansion in private banking has decelerated from the double-digit rates posted some years ago. Another is that much of the region’s expansion is being driven by onshore Chinese wealth, which is notoriously tricky for international banks to access. A third is that local players in financial centres such as Hong Kong and Singapore, many of which have strong links to regional entrepreneurs, have become formidable competitors. “The result is that, if you dig deep into the numbers, very few non-regional private banks in Asia are profitable,” says Mazaud. 

Mazaud adds that it is still possible to serve clients without having a local presence. “Although we have scaled back on our presence outside Europe, we still have about 120,000 clients who represent 67 different nationalities,” he says. 

Besides, says Mazaud, there is still plenty of scope for further growth in SGPB’s core European market, where it is now firmly entrenched among the 15 largest private banks. “On average, annual growth in European private banking has been about 3% or 4%,” he says. “But in some areas the market continues to post double-digit growth rates. Our challenge is to identify the pockets of potential growth in the European private banking universe.”

Foremost among countries still offering extensive opportunities in private banking is France, where SGPB has successfully repositioned itself as a market leader. In 2012, says Mazaud, France accounted for little more than 20% of SGPB’s assets under management (AUM). Today, French AUM have risen to around €60bn – half of the bank’s total of €120bn – with SGPB now serving some 60,000 clients through its network across 80 French cities. 

Another growth market for SGPB is the UK. Societe Generale underlined its commitment to the British market in 2016 when it completed the acquisition of Kleinwort Benson, which has since been fully integrated with SGPB’s local private banking unit under the Kleinwort Hambros brand. Kleinwort Hambros, which brings together two of the longest-established and most iconic names in the UK financial services industry, has some 10,000 clients, each with minimum liquid assets of £1 million. Mazaud is convinced that there is plenty of scope for further growth in the UK, where client satisfaction levels are higher than in any of SGPB’s other operations. To harness these opportunities, the bank is planning to broaden its presence beyond its present network of branches in London, Cambridge, Leeds, Newbury and Edinburgh. “We believe we can do much more in the UK, at a reasonably low cost, by increasing the size of our existing operations and expanding into cities where we are not yet represented,” says Mazaud. 

“As for Brexit, we are better positioned than other banks because we have good strength and scale here in the UK and we are also part of a very large continental European bank. Therefore, we have the option of clients being able to either be served in the UK or serviced in some other EU location.”

Elsewhere in Europe, SGPB remains committed to its operations in Monaco and Luxembourg, and has identified Germany as another market with significant growth potential. There, the recent announcement of Societe Generale’s acquisition of Commerzbank’s Equity Markets and Commodities (EMC) activities represents an important milestone in the group’s expansion in Europe’s largest economy. EMC is a leading manufacturer, distributor and market maker of structured and flow products, and a well-regarded provider of asset management solutions. This expertise will generate substantial opportunities to harness synergies with Lyxor, the investment management specialist 100% owned by Societe Generale, which has AUM of close to €140bn.

EMC’s demonstrable strengths in structured products dovetails well with Societe Generale’s widely-recognised capabilities in the structured solutions space, and complements Lyxor’s leadership in the market for exchange-traded funds (ETFs). Each of these asset classes is expected to play a key role as private investors look to diversify their exposure in advance of the correction in equity and bond markets that many analysts are now predicting. Mazaud, who was appointed to oversee the group’s Asset and Wealth Management division in 2017, says that factors ranging from abundant liquidity to US tax reform should keep any correction at arm’s length for the time being. But in line with its main priority of safeguarding its clients’ wealth, SGPB is recommending that investors maintain well-diversified portfolios and explore the potential of solutions such as structured products that can mitigate the impact of a sharp downturn.