SocGen's restructuring is going to go further than simply cutting a few equity derivatives traders. The French bank is accelerating its restructuring plan and has promised an ominous new strategy, starting from the first half of 2021.
The immediate restructuring plan is likely to affect the retail bank only. SocGen is entering the avante-garde of European banking consolidation by proposing a transformative merger with itself – it wants to combine its two domestic French retail branch networks. Investment bankers and traders are unlikely to be affected in this phase of changes.
It doesn’t look like things are going to stop there, though. With SocGen's share price near historic lows, it appears that CEO Frédéric Oudéa wants to get things moving, and that’s unlikely to spare the investment bank. There is a new strategic plan scheduled for the first half of 2021, which is going to have a “social dimension” (in French labour law terms, this means redundancies).
Obviously, the big question relates to equity derivatives. - Will the bank cut deeper than it has already? The equity derivatives franchises of both SocGen and BNP Paribas are two of the few genuinely world-leading investment banking businesses to be found outside the US bulge bracket, and across the cycle, they’re very profitable. But, as SocGen in particular found out this year, the cyclicality of equity derivatives can be brutal, and the business is capable of delivering big, potentially capital-eroding losses in volatile markets.
So far, the French national champions have always ended up deciding that the occasional horror quarter is justified by the revenues in good times, but, as options traders will know better than anyone, there’s always a risk.
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