SocGen to sell $175B Lyxor fund unit amid liquidity crunch: Bloomberg

October 30, 2020.
Societe Generale CEO Frederic Oudea presents the bank's results in Paris, Wednesday Feb. 18, 2019. (AP Photo/Thibault Camus)

Societe Generale CEO Frederic Oudea presents the bank's results in Paris, Wednesday Feb. 18, 2019. (AP Photo/Thibault Camus)

has decided to divest its asset management division, Bloomberg reported Friday, following months of chatter about an impending sale as the Paris-based bank struggled to dig itself out of its worst-performing year since 2008.

The third-largest French bank is said to be working with an advisor to line up potential buyers for Lyxor, which managed EUR 149.8 billion ($174.5 billion) as of September, the news organization said, citing people familiar with the matter. The people were not identified because the deliberations are ongoing and private.

Société Générale has been mulling the sale and consolidation of some of its subsidiaries this year in a desperate bid to reinforce its capital buffers against headwinds from the COVID-19 pandemic. 

According to Bloomberg, SocGen has yet to make a final decision on a sale and it may decide to not sell Lyxor at all if there is no suitable buyer. A spokesperson for the bank declined to comment.

The bank reportedly began weighing its options for Lyxor in August 2019. Last year, Lyxor saw a $67.8 billion outflow from its exchange-traded funds business, which the company blamed on a wider retreat from European securities. 

Talks of a sale intensified again in recent months as SocGen struggled to bolster its capital buffers after heavy losses in the first half of the year, according to multiple reports.

SocGen in August posted EUR 1.26 billion ($1.46 billion) in losses for the second quarter, its worst quarter since 2008. In response, the bank revealed that two senior executives would leave the firm as part of a restructuring of its investment banking business after an 80% year-over-year drop in equity trading revenues in the quarter.

As it sought to contain costs, Société Générale Group said in late September that it launched a study to assess the potential benefits of merging its two main French banking networks, Crédit du Nord and SocGen. The review is slated to be completed by the end of next month.

Earlier this year, the bank decided it would not sell U.K. private bank Kleinwort Hambros after a number of bidders backed out due to the small size of the business, Bloomberg reported.

SocGen cut 1,600 jobs in April, about 1,200 of which were in its investment banking unit, as it joined a number of major banks that laid workers off during the coronavirus pandemic. In July, London-based HSBC said it would cut 38% of its workforce in France, affecting 255 positions, as part of its plan to eliminate 35,000 jobs globally.

Following these trends are signs that the bank is losing market share to one of its largest rivals, BNP Paribas, and will likely continue to do so, according to a report released late last month by ratings agency S&P Global.

The agency noted that while SocGen’s return on average equity crashed to -4% from about 6% in the first half of 2020, BNP Paribas’s only declined to about 6% from over 8% in the prior-year period. 

Moreover, S&P analysts projected “gloomier” prospects for SocGen, with an estimated full-year loss of EUR 1.02 billion ($1.19 billion) versus a profit of EUR 3.25 billion ($3.78 billion) in 2019.

“There have been a lot of discussions about Soc Gen’s strategy and the profitability of their investment banking unit for some time now,” said Jerome Legras, head of research at Axiom Alternative Investments, in the report.

“There’s no determination to bring the [return on equity] above 10%. There are maybe ways of doing so — M&A, cutting back the investment bank — but the feeling that prevails today is that the strategy hasn’t been working for years and they are in an impasse,” Legras said.

Speaking at a Bank of America conference last month. SocGen CEO Frédéric Oudéa said the bank plans to further cut costs through additional layoffs and branch closings.

Oudéa claimed that SocGen had made progress toward recovering from the pandemic-related shocks in the third quarter, with a common equity Tier 1 capital ratio of 12.6%, up from its earlier forecast of between 11.5% and 12%. 

Still, the bank’s capital buffers lag behind the rest of the industry in the region, which had an average CET1 ratio of 14.87% in the second quarter, according to the European Central Bank.

--Additional reporting by Theo Wayt, Reece Wallace, Patrick Hoff and Owen Poindexter