Société Générale's return home a sign of things to come

In an era when wealth managers are re-assessing strategy, profitability and business models, the purchase of a European private banking franchise by an Asian player could have significant implications for the industry.

French bank Société Générale has agreed to sell its Asian private banking unit, which runs $12.6bn (€9.2bn) for wealthy clients, to Singapore-based player DBS, which has broader ambitions across the Asian continent.

This marks a change of emphasis for the French house, which had previously named Asian expansion as a key strategic priority, although it had struggled to deepen its imprint there.

SocGen will receive $220m for the transfer. A statement from the French bank says: “Société Générale Private Banking will be in a position to free up investment capacities to accelerate its development in its core markets and to further strengthen the services offered to its clients in Europe, Latin America, the Middle East and Africa.”

The bank has recently made inroads into leveraging its private banking tools for North African and Middle Eastern markets, where services for higher net worth clients will increasingly be sold through branch networks, particularly in Morocco.

The transaction will increase assets managed by DBS for HNW clients by more than 20 per cent to $67bn. But the transaction is not a “transformational” one, it is purely an “accelerator” towards the bank’s goal to becoming a leading pan-Asian manager, Su Shan Tan, DBS’ group head of Consumer Banking & Wealth Management told PWM.

Assets managed by her team have been growing $10bn each year, so the latest take-over gives a further boost, she said. “This deal brings us very good intelligence, capacity and expertise,” said Ms Tan. “It’s not just about assets – it brings us people and intelligence too.”

DBS customers will also have access to the European structured products platform controlled by the investment bank at SocGen in Paris, plus use of the bank’s financing capacity in luxury areas such as yachts and planes.

Around 40 per cent of the clients to be acquired by DBS are based in North Asia and 45 per cent in the South East Asian economies of Singapore, Malaysia, Indonesia and Thailand. The balance belong to the non resident Indian community in Asia.

DBS has long been a proponent of the pan-Asian banking model, competing with the likes of Standard Chartered, and some smaller banks from emerging economies, which are increasingly making a name for themselves across Asian borders.

While Ms Tan dismissed any speculation that the death-knell for European private banking operations in Asia had finally been sounded, she suggested only those wealth managers with substantial scale could survive in highly margin-driven Asian markets.

“Credit Suisse and UBS have been able to build size and scale in Asia without retail branches,” she said. “I think scale matters, and if all you are is a pure private bank, then it will be tough.”

The deal was inevitable and potentially the first of many, believes Ray Soudah of MilleniumAssociates. “SocGen operated a standalone platform and was subscale. The opposite is the case for DBS, which will be able to reduce the cost part of the cost/income ratio of the acquired business, not withstanding tight margins in Asia.”

The French bank has been addressing a long-term question about the deployment of capital, and has decided it is sensible to return to a European focus, said Mr Soudah. “We expect those [other European banks] who have local platforms and are subscale to exit sooner or later.”

Jean-Francois Mazaud, head of Société Générale Private Banking, said SGPB Asia “has been properly revamped” under his watch and is well positioned for growth. “But it would require further significant investments to take it to the next level.”

The recovery in Europe has meant the bank is redeploying resources for private banking, particularly to its home market of France where it manages €50bn and hopes to expand further.