Growth of structured products expected to drive additional derivatives trading
In July, Société Générale reached an agreement with Commerzbank to purchase its Equity Markets & Commodities business, a move that will bring additional customers into the French bank's derivatives business and strengthen its footprint in Germany.
The EMC assets purchased center around structured products and flow-related business, including investment products such as the line of exchange-traded funds marketed under the Comstage brand, as well all related sales, market-making and IT infrastructure.
Combining Comstage's assets under management with Société Générale's existing Lyxor ETF business will put the French bank in the No. 2 spot in Europe for ETF assets under management. Additionally, Commerzbank has been a leader in ETF market making and actively deployed equity index futures to hedge the associated risks in its EMC division.
Another dimension of the EMC business is the marketing of structured investment products. These products contain equity index options bundled together to provide investors with tailored exposures to equity markets in Europe and Asia. To manufacture these products, Commerzbank operated a trading desk with access to index options markets such as Eurex, Euronext, LSE and HKEX. The German bank also manufactured similar products based on commodity options for investors interested in exposure to global commodity markets.
The deal is still subject to regulatory approval and the finalization of legal documentation, but both sides expect the transaction to be finalized by the end of 2018. The execution of the transaction via a gradual transfer of sub-portfolios is expected to start in the fourth quarter and last until 2020. Excluded from the agreement were Commerzbank’s equity capital markets, equity brokerage, and commodity hedging businesses, which will remain at the German bank.
The transaction is in-line with previously announced strategic efforts from both banks. Société Générale's "Transform to Grow" strategic plan involves bolstering its Lyxor ETF suite and growing its derivatives business across asset classes and geographies. Germany in particular is a key market for the bank and the addition of the Commerzbank assets was flagged by the French bank's management as one of the core reasons for the deal.
"This acquisition would further reinforce our Global Banking and Investor Solutions activities in line with our 2016-2020 strategic plan," Séverin Cabannes, Société Générale's deputy chief executive officer said in a statement announcing the deal. "In addition, while complementing Lyxor’s ETF franchise, this acquisition would be transformational for our activities in Germany as it would enable Société Générale to reach a new scale in the leading Eurozone economy."
As for Commerzbank, the firm has focused on streamlining its operations to focus on core areas and freeing up capital. According to the bank’s Q2 analyst presentation, the bank will achieve 200 million euros in cost savings as well as the release of 6 billion euro in risk weighted assets.
