Société Générale stronger as a sum of its parts

Despite having worked for Société Générale since 1993, when he started to advise the group’s corporate clients on privatisations, IPOs and capital increases, Jean-François Mazaud admits to having had very little contact with the Private Banking arm until his appointment as CEO in March 2012.

He was an investment banker by trade, and spent most of his time in SocGen’s twin towers at the heart of the concrete and glass wind-swept mini-city of La Défense, to the North-West of Paris.

Now, while his clients prefer to attend the private banking HQ at the heart of the Opéra district in central Paris, Mr Mazaud continues to regularly visit his former home in La Défense. And this is not for any reasons of nostalgia or sentimentality.

One of his first goals is to change the dynamic of often tetchy, inter-groups relations. His initial review of the business, which has taken up most of his first year in office, has focused particularly closely on strengthening the feeble links between Société Générale Private Banking and other group entities, examining ways in which they can co-operate for mutual benefit.

“The key question I want to ask is this,” says the vibrant Mr Mazaud. “How can we put the private bank at the centre of the group? And can we do this while keeping our identity, strength and DNA, while playing to the synergies of the wider group?”

Currently, he sees an under-utilisation of market expertise for private clients, with few relationship managers having sufficient knowledge to explain to wealthy families the extent of available strategies.

“We have a great, untapped potential, right in front of us,” says Mr Mazaud. “Our capacity in structured products and derivatives must be fully explained. We can also do more with structured finance and M&A.”

Similarly, he would like to see the private bank making the most of strongly positioned retail networks, in the same way as larger rivals such as HSBC have done, in strategic regions such as Central & Eastern Europe – where SocGen provides solutions to wealthy clients through subsiduary Komerční banka in Prague – plus the Mediterranean belt and Eastern Africa. “These are countries which are all fast gaining importance in terms of wealth accumulation,” he reflects.

There is certainly a feeling within SGPB that the institution, which has spent heavily recruiting staff in both the UK and Asia, and boasts a massive 50,000-strong international client base, needs to raise its game, that it has the tools and the personnel available, but is currently punching below its weight in certain markets.

Top management, including Mr Mazaud and his deputy Patrick Folléa, who has also had considerable experience with key rival BNP Paribas, including a stint in Asia, believe they can learn much from the efficiency and consistency of the global offering presented by SocGen’s Corporate & Investment Banking arm. “The balance among SocGen customers is towards entrepreneurs,” says Mr Mazaud. “We have more people making their wealth than selling their wealth and need to position ourselves accordingly. Other French banks have the opposite mix.”

A new Private Investment Banking initiative, to fill the needs of this segment, in particular exploiting group synergies, “is already alive and kicking”, he says, though some cultural change is necessary in order to develop closer co-operation.

“We have a bank which historically pushed its development very much on a standalone basis and didn’t find it useful to seek synergies with the rest of the group, as the client base we were serving at the time was not in need of these types of services,” says Mr Mazaud.

But the hand of the bank is now being forced with the emergence of family and private investment offices, which are beginning to poach significant chunks of high-end custom from traditional wealth management groups.

He says the advantage over competitors is that top-level service for private clients starts not at Ä200,000 like it does at many rivals, but €1m, making it more cost-effective to offer higher-quality attention for smaller numbers of clients. Around 10 per cent of wealthy families on the private bank’s books will be offered the upmarket joint service.

The initiative is being initially rolled out across the key markets of France, the UK, Switzerland, Spain, Italy and Dubai, as it will only be viable in those jurisdictions where both the private and investment banking franchises are strong enough and can operate jointly.

Both sides of the bank have arrived at a defined list of suitable clients and have asked bankers to stick to this list “and not go beyond the boundaries”.

It has been vital to both parties in these delicate cross-group negotiations, that once the list has been drawn up, it is immediately closed, to make sure the situation never occurs where both private and investment bankers are pestering the same “target” client to buy products from them.

Costs are likely to be shared equally, but there will be pressure from the bankers generating the revenue to keep profits on their own account, otherwise there will be no incentive for them to put effort into the venture. This is where similar initiatives have fallen down in rival organisations.

Alongside this key initiative, SGPB has tactically restarted its recruitment in Asia, after a post-crisis freeze, against a challenging background of acquiring new assets in Europe.

While net new money in Hong Kong and Singapore has returned at levels unprecedented for the last three years, it is still too early to see any results from the Far East boosting the bank’s overall fortunes, says Mr Mazaud.

“The market is increasing in double digit terms in some of the fastest-growing areas,” he says. “But as a European or French bank, it has become more difficult to operate during the last 12 months.”

While there is no sense of battening down the hatches, a more realistic attitude to future growth is gradually penetrating this once gung-ho private banking franchise under Mr Mazaud’s rule. “We need to manage our costs carefully, remain close to our clients and show them the bank is resilient and can wait for better days,” he adds.

With €88bn in client assets under management, SGPB is not yet matching the ambitions of Mr Mazaud and his bosses, as the institution is still currently hovering several rungs below the elite Swiss, US and international wealth management groups.

“Our ambition is to be in the top 10 private banks in Europe,” he says. “We are currently not too far off.”

Mr Mazaud would like his bank to be a Ä100bn player within two years, through client and asset acquisition, particularly the mythical success of “increasing share of wallet”, rather than relying on any market growth.

But size is not the only driver, with Mr Mazaud believing his private bankers can be best defined by improving and maintaining the quality of service they offer, to start with in several selected countries, including the UK and France, to build on their recent recognition as ‘Best Private Bank in Luxembourg’ in the recent PWM awards for 2012. But he acknowledges, this will be no easy ride.

“Private banking is haute couture and the service has to be tailored,” says Mr Mazaud, signalling that his analogy with French designer apparel is a perfectly serious one.

“This is what makes the equation complex. You need to find ways to create economies of scale, to streamline the decision-making process and to deliver the best possible service to your clients. I have done a lot of complex deals and transactions in investment banking and what has always been impressive is the ability of our bank’s structure to mobilise itself and be courageous. Our clients recognise this.”