Société Générale’s €548m acquisition in January of 2S Banca, the securities services business of Italy’s UniCredit Group, is an important step in the French bank’s aim to become a Europe-wide player in the securities services business.
2S Banca was the second largest custodian in Italy, with more than €455bn in assets under custody and nearly €80bn in assets under administration.
The business SocGen acquired includes custody, clearing and settlement, depository bank, fund administration and transfer agency for clients in Italy, Luxembourg and Dublin.
“Société Générale’s objective is to
provide securities services across Europe as a European player,” says Alain Closier, head of the bank’s securities services division. “There aren’t many players in Europe with the same strategy. The large US players for instance have a very different approach to the region and tend to view it as a single country, which is not the case yet.”
As for European banks, many are in the same position as Unicredit was - very large banks in their home country but aware of the fact that this is no longer sufficient. Many of these banks also consider securities services as a support function for internal businesses rather than as a business in itself.
“In the future it won’t be enough to be a leader in securities services in just one country. At the minimum, players will have to have a true European strategy and presence,” says Closier.
Closier argues only a handful of banks have a real interest in implementing a European specific strategy and of these, three are French - Société Générale Securities Services, BNP Paribas Securities Services and Caceis Investor Services. “We are of a sufficient size and we have the strategy as well as the quality of services to view securities services as a third party business.”
With€2,000bn in assets held and €386bn under management, Société Générale Securities Services ranks third among securities custodians in Europe and tenth worldwide.
It employs 4,500 people and operates in more than 30 countries in Europe, the Americas and Asia Pacific.”Three years ago, Société Générale decided to implement this new strategy - to view securities services as a business and to target the European market. Our ultimate frontier is global, but Europe is our natural home and that is where we are embarking from,” says Closier.
The strategy involved pooling together all of the people related to securities services, including IT, into the same division.
“For a bank like Société Générale it was difficult, because you had one part of the business in asset management and investment banking and another part focused on retail banking. Over the year, with technology you can find teams dispersed and even sometimes in competition with each other. But in order to develop our strategy, we had to successfully achieve this internal reorganisation and position our offer as a third party business. This was the first step in the qualitative client-oriented product offering we are developing.”
The new strategy mixes organic and external growth. “Relying just on organic growth has its problems, because you will rarely reach a critical size within a suitable time frame. Within one or two years you can find that the business is still not profitable. However, relying just on a large acquisition can raise problems of integration and competition with existing businesses. We therefore think the key to good growth is to mix the two approaches.”
Vital for any acquisition, says Closier, is a smooth
transition from one platform to the other.
“Our clients must experience a smooth transition, because at the end of the day what they want is quality. It is very important to ensure that the process of moving on to our European platform is as straightforward as possible. In the
long term, these clients also want quality in terms of competitive services and straight through processing.”
Developing a Europe-wide platform is a challenge says Closier, given the differences that exist across European countries. “Implementing a European strategy requires very large IT projects because the environment is not standardised - in terms of both the markets and the products that are offered. Within five years it may be completely different and much more standardised, but in the interim, these projects have to be undertaken.”
Closier describes the securities services scene in Europe as “a very interesting market with a very interesting growth rate”. The purely local players with only local clients will continue to decline over the next five years.
“I think in Europe you will not have many securities services players in the future, but it won’t consolidate down to only two or three players either. I think there will be a handful of US and non-US players. As an advocate of European players, I cannot imagine that the European market will ultimately all be in the hands of only US players - they are strong, but looking at Europe from London is not the same as acting local in the key continental European countries.”