Société Générale

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Société Générale

29, Boulevard Haussmann
75009 Paris
France
Telephone: (+ 33) 1-42-14-20-00
Fax: (+ 33) 1-42-14-54-51
Web site: http://www.socgen.com

Public Company
Incorporated: 1864 as Société Générale pour Favoriser le Développement du Commerce et de 1’Industrie en France S.A.
Employees: 71,149
Total Assets: $429.25 billion (2000)
Stock Exchanges: Euronext Paris
Ticker Symbols: GLE; SCGLY (OTC)
NAIC: 522110 Commercial Banking; 522210 Credit Card Issuing; 523110 Investment Banking and Securities Dealing; 522120 Savings Institutions; 522293 International Trade Financing

Société Générale is France’s second largest banking group, behind rival BNP Paribas, operating more than 2,500 branches in France and another 500 branches internationally and generating more than EUR 2.5 billion from assets of nearly EUR 25 billion. Yet Société Générale remains a small player in what many observers view as a growing climate for cross-border mergers and takeovers as Europe becomes a single-currency market. Société Générale considers itself a marriageable prospect, at least in the long term. Meanwhile, the bank concentrates on retail bank services, asset management and private banking services, and corporate and investment banking operations. Société Générale is actively building a position in Eastern Europe, notably through its EUR 1.2 billion acquisition of majority control of Komercni Banka, the Czech Republic’s third largest bank, made in mid-2001. This acquisition adds to Société Générale’s holdings in Bulgaria and Romania. Société Générale is also building a position in the United States, especially in the investment market, where it operates through its SG Cowen subsidiary, acquired in 1998, and boosted, in April 2001, by its purchase of 51 percent of Trust Company of the West (TCW), the largest unlisted asset management firm in that market. Société Générale continues to be led by Chairman and CEO Daniel Bouton, who successfully enabled the bank to resist a hostile takeover attempt by BNP in 1999.

Forged in the Industrial Revolution

In 1864, when France was in the midst of its industrial revolution, steel magnate Joseph Schneider along with a group of private Paris bankers formed Société pour Favoriser le Développement du Commerce et de 1’Industrie en France S.A. Another Schneider family member, Eugene, was the first president of the bank. At first, Société Générale was both a deposit bank and an investment bank. It grew rapidly by establishing regional banks all over France and by investing in industry, particularly in metals. For several years, this system worked well, yielding large profits.

The bank opened its first branch in 1864, in Bordeaux. The next year it opened nine more in other cities, including Orleans, Lyons, Tours, and Toulouse. The following year several more branches were opened, among them ones in Lille, Marseilles, Nantes, and Rennes. In 1869 and 1870, Société Générale opened branches in two towns important to the metal industries, St. Etienne and Clermont-Ferrand. In 1871, the bank opened its first foreign branch, in London.

Société Générale established itself in Alsace-Lorraine before the Franco-Prussian War in 1870, in Strasbourg and Mulhouse, and a little later in Colmar. After the war, however, the territory belonged to Germany, and in 1880 Germany’s assimilation policy forced the bank to either close the branches or divide them with an Alsatian firm. Thus, Société Générale Alsacienne de Banque was founded by an Alsatian venture partly backed by Société Générale. Progress was slow for the next two decades in that region.

By 1875, there were 71 Société Générale branches in all, but during the 1880s and 1890s growth was much more gradual, due largely to losses from risky investments. Because the bank had not accumulated reserves from profits or acquired fresh capital, it suffered heavy losses at the end of the century.

After 1900 Société Générale built up its capital again, focused more strictly on deposits, and resumed its growth. In 1914, it had 114 branches covering nearly all commercially or industrially significant towns. The bank had also opened 560 ancillary offices, with limited hours and services, by that time.

World War I slowed Société Générale’s progress. The Alsatian bank, however, opened branches within Germany and, despite the conflict between Germany and France, relations between the two banks remained close. Although after the war the Treaty of Versailles returned Alsace-Lorraine to France, Société Générale and the Alsatian bank remained separate entities.

Société Générale continued to grow during the 1920s, when an effective economic stabilization policy was implemented throughout the country. Nonetheless, with the onset of the Great Depression, which hit France in 1930, the Bank of France was not able to soften the blow. Several banks failed, but Société Générale survived. During the 1930s, Société Générale entered into an agreement with Crédit Lyonnais, another large deposit bank, to cut back on expansion.

During World War II, under the Vichy government’s plan for a “provisional organization for production,” banks were discouraged from opening new branches and forbidden to sell any stock or interests they held in other banks.

Postwar Reconstruction

After the war, the government took on a much greater role in the French banking system. In December 1945, France’s four largest deposit banks, including Société Générale, were nationalized. Société Générale’s stockholders were duly bought out by the government, and the company became a state-controlled bank. But like all of the nationalized banks, Société Générale retained its essential individuality and autonomy. It also kept its personnel, which helped to quell customers’suspicions of the new structure.

The nationalized banks possessed about half the total assets of all French banks, and as smaller banks were absorbed by larger ones the French financial system became even more concentrated, especially since the government had also passed new laws in 1946 giving the state control over the distribution of credit. As a central part of this system, the nationalized banks experienced three decades of steady growth.

After World War II, there was a trend in banking toward international expansion. Although Société Générale was reluctant to join this movement, by 1955 it had 35 branches spread throughout Algeria and other French colonies and in several foreign countries.

In the 1950s, the National Credit Commission required all banks to reduce the number of their branch offices and to gain its permission before further openings, as part of the government’s continued attempt to make the financial industry more efficient.

In the early 1960s prospects for domestic expansion were curtailed even more for banks such as Société Générale when the government imposed sharply restrictive lending ceilings on the financial system in its effort to reduce inflation. This move forced banks to search for avenues of expansion other than those of traditional deposit banking. Many of them entered the eurodollar market; others plunged into merchant banking or extensive overseas banking. Société Générale was one of the first to begin dealing in eurocurrencies.

In the 1960s France enjoyed a period of strong economic growth, as it entered the European Economic Community, and its exports boomed. By 1968, the state was encouraging banks to diversify their roles, especially in the area of housing construction. That year, Société Générale planned to establish a banking concern in the United States called Sogen International Corporation. In addition, the bank continued to expand internationally with a focus on commercial trading and foreign currency.

In 1973 a new law was passed that allowed Société Générale to sell up to 25 percent of its equity to its staff and a limited number of institutional investors. Also, Société Générale was the lead institution behind France’s first venture-capital company, Soginnove, which began with FFr 60 million.

In 1974, the bank’s involvement in euromarket loans put it in the center of an international crisis. Most of the eurodollar loans were short term and influenced by the flux of world trade. Many companies used the loans only to borrow from the least expensive market, but some were eurodollar borrowers because they could not qualify for loans in their own countries. Also, several borrowers came from underdeveloped countries, where sufficient capital was not always available. These factors and the fact that average loan terms had suddenly lengthened from five to ten years put the euromarket in a precarious situation, especially in the midst of the oil crisis that began in 1973.

Société Générale was also one of the main lenders in a foreign syndicate that lent eurodollars to the failing United States National Bank of San Diego (U.S. National) in 1973. When U.S. National did fail, Société Générale lost $7.5 million.

In 1975, Société Générale introduced Agrifan, a food-products trading company to connect French suppliers with foreign food buyers. The trading company was such a success—handling $70 million in deals within two years—that the bank organized two more trading companies in 1977, one for medical supplies and another for food-industry equipment. The three trading companies were controlled by Sogexport, Société Générale’s new subsidiary. The government encouraged the bank’s moves because they helped the French export industry. Inspired by Société Générale’s success, several other large banks formed their own trading companies.

Company Perspectives:

The Société Générale Group is a major European player recognized for its profitability and its capacity for innovation. It figures in the top tier of the most profitable banks in Europe, thanks to its well-adapted development strategy and the remarkable dedication of its teams responsible for implementing this strategy .

During the mid-1970s, Société Générale handled almost a quarter of the new French security introductions on the Paris stock market and almost half of the new foreign ones.

Ownership Changes in the 1980s

In 1978, Société Générale began a heavy overseas expansion program. That year the bank opened a branch in New York, and in 1979 it opened branches in Latin America and Asia. In 1979 it also formed a new banking group in a joint effort with the National Bank of Egypt, and continued to look for ways to grow in the Middle East. By that time, the bank had 200 foreign branches in 60 countries.

In 1979, a new law allowed Société Générale to increase its capital without government intervention, although at that time the government still owned 92 percent of the bank’s stock. The next year, Société Générale was the first of the nationalized companies to raise a large part of its capital on the stock market, and by 1980 the government’s stake had decreased to 87 percent.

In 1980, the bank acquired a controlling interest in the London brokerage Strauss Turnbull and Company, and also acquired its Eurobond operations. In addition, the bank opened branches in Milan, Bucharest, Manila, Taipei, Athens, and Panama City and formed Société Générale Australia Limited Investment Bank and Société Générale North America to issue high-rated commercial paper.

In 1981 France elected a socialist government again, and the state regained full ownership of Société Générale the following year.

In 1982, Jacques Mayoux was appointed chairman of Société Générale. Mayoux was viewed as one of the few leaders of state-owned banks who would keep his position should there be a right-wing victory in the future. He was prominent in financial circles for having served in the French treasury for 11 years and as general manager of France’s agricultural bank, Credit Agricole, for 12 years.

Mayoux began to move Société Générale out of commercial banking and into corporate finance and investment banking. He also began to develop the bank’s business with small- and medium-sized companies by expanding its work in consumer credit financing and improving its equity base through issues of nonvoting stock and perpetual bonds. In 1983, Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France officially shortened its name to Société Générale.

Although the bank was very successful within France, its international operations were floundering, a situation some experts blamed on the bank’s late arrival to international corporate banking. In 1984, international operations suffered a $2.4 million loss. However, in 1985 the bank began to refocus its international operations by concentrating more on wholesale and financial activities and specialized financing.

In 1985, Mayoux also sought to reduce the bank’s number of employees, then at 33,000, in order to cut operational expenses, which had been driven up by what he told American Banker were “atrocious expenses involved in reprogramming software every time the government changes a regulation.”

Société Générale, like the other nationalized banks, had long been criticized for its caution, which some said had hindered its progress, but in the mid-1980s it began to strengthen its riskier investment-banking operations. By international standards, the big French banks were undercapitalized, and investment banking was one way to alleviate the condition.

In 1985, the bank organized a new company called Projis, to take stakes in larger companies, and also planned to form its own investment-banking arm with capital of FFr 100 million to complement Projis. Meanwhile Soginnove, its venture-capital company, doubled its capital to FFr 120 million. In general, there was increased activity between entrepreneurs and bankers as commercial banks, including Société Générale, stepped up their investment services. Nonetheless, Société Générale did not shrug off its legacy of caution: one spokesperson told the Financial Times in 1985, “we have to fill the investment banking gap. But we will be doing it with prudence, not a flaming torch.”

In 1986 the conservatives regained power in the government and soon began an extensive denationalization program, returning the companies nationalized by the Socialist Party in 1981 to the private sector and also beginning to do the same with banks and insurance companies that had been under state control since just after World War II.

In June 1987 Société Générale was officially privatized, with FFr 21.5 billion in capital. To protect the newly private companies from foreign takeover, the Ministry of Finance arranged for a noyau dur (hard core) of stable shareholders to invest in them.

Key Dates:

1864:: Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France S.A. is founded.
1945:: As one of France’s four largest deposit banks, Société Générale is nationalized by the French government.
1974:: Firm establishes Soginnove, France’s first venture capital company.
1975:: Agrifan, a food products trading company, is launched.
1980:: Firm acquires controlling share of London-based brokerage Strauss Turnbull and Company.
1983:: Firm’s name is officially shortened to Société Générale.
1987:: Société Générale is privatized, with FFr 21.5 billion in capital.
1998:: Firm acquires Japanese bank Yamaichi Capital Management, technology and healthcare investment specialist Cowen & Company, and investment firm Barr Devlin.
1999:: Société Générale resists takeover attempt by BNP; finds white knight in Spain’s Banco Santander, which acquires a 5 percent share in the company.

Marriage Prospects for the New Century

Société Générale’s shares remained at depressed levels following the October 1987 stock market crash. “It was not surprising that the shares seemed attractive to large numbers of buyers,” said Marc Vienot, the new chairman of Société Générale. Société Générale, anticipating passage of a law that would change the French stock exchanges, also purchased a controlling stake in the Paris brokerage firm of Delahye Ripault.

After the socialists’ election in 1988, Société Générale’s shares rose sharply, to FFr 550, in late October. About that time, the head of Marceau Investments, George Pébereau, announced that he had a 9.16 percent stake in the bank. But because Pébereau was backed by at least two state-owned companies, there was a conservative outcry, causing a raid on Société Générale. Vienot combated the raid by persuading five private companies to buy a substantial stake in Société Générale. In 1988, Société Générale acquired Touche Remnant Holdings Ltd., a British asset-management firm, and in 1989 it acquired Ingwerson and Company, a Dutch brokerage firm. Earnings in 1988 were very strong, up 28 percent.

During the 1990s, Société Générale concentrated on building up its three core operations: retail banking, asset management and private banking, and corporate and investment banking. These were developed primarily through internal growth, and then, especially later in the decade, in the pursuit of acquisitions. An important acquisition was made in 1997, when the bank took over Crédit de Nord, strengthening its retail banking wing in France.

On the international scene, the bank strengthened its position in Japan with the acquisition of Yamaichi Capital Management in 1998, while launching its Société Générale AM UK subsidiary to bring its assets management activities to London. Société Générale then turned to the United States, buying up technology and healthcare investment specialist Cowen & Company, as well as Barr Devlin, another investment firm. In 2001, Société Générale continued to build on its U.S. holdings with the agreement to acquire Trust Company of the West (TCW), a large privately owned investment firm. That deal gave Société Générale an initial 51 percent of TCW, to be built up to 70 percent by 2006.

The following year, Société Générale believed itself to be on its way to becoming France’s leading private bank when it entered friendly takeover talks with fellow French bank Paribas. Yet rival BNP quickly stepped in, bidding not only for Paribas but for Société Générale as well. In a battle that lasted for some weeks, BNP succeeded in gaining control of Paribas—but not of Société Générale, whose stockholders steadfastly resisted the takeover attempt. Société Générale at last found a white knight in Spain’s Banco Santander Central Hispano (BSCH), which acquired a 5 percent share. BNP backed down from Société Générale, but kept Paribas, firmly taking the lead as the largest French bank

Société Générale was left to content itself with a number of smaller acquisitions, including acquisitions that brought the bank into Romania, Bulgaria, and Madagascar. The bank built further on its position in Eastern Europe with its acquisition of Komercni Banka, the Czech Republic’s third largest bank, made in mid-2001 for a price of EUR 1.2 billion. Meanwhile, Société Générale engaged in a series of strategic partnerships, such as that made with BSCH in 2000 and another, made with Italy’s Società Assicuratrice Industriale, in which Société Générale acquired 30 percent of Banca SAI.

These moves were emblematic of a wider trend among European banks then gearing up for what many observers viewed as a coming large-scale consolidation of the continent’s banking industry. As the conversion to the single euro currency took shape at the end of the century, Europe’s many banks—until then largely focused on their domestic markets—had begun to engage in a vast series of cross-border partnerships, while attempting to consolidate their domestic positions, such as BNP had done with its Paribas takeover.

Société Générale remained a small player among such bank industry heavyweights as the Netherlands’ ABN AMRO and ING, Spain’s BSCH, and Germany’s Deutsche Bank. As one observer told Business Week: “It’s only a matter of time before there’s a crossborder merger between two of the really big banks. And if that happens, it will certainly transform the market.”

Société Générale recognized its own need to search for potential merger partners, even as BNP Paribas continued to woo its smaller rival. With added pressure coming from possible mergers among its other domestic rivals, such as Credit Agricole and Credit Lyonnais, Chairman and CEO Daniel Bouton maintained his resistance against BNP Paribas. Yet the bank acknowledged that it would be forced to gain greater mass in the near future. One executive described the bank’s situation to the Financial Times as: “We’re not like a bachelor saying we want to remain a bachelor for ever, watching television and drinking coffee on our own.”

Principal Subsidiaries

ALD (Germany) ; Alorfim; Banca SAI (Italy; 30%) ; Banco Société Générale SA (Argentina) ; Banco Sogeral (Brazil) ; Banque de Polynésie (French Polynesia) ; Banque Roumaine de Développement (Romania) ; BFV - SG (Madagascar) ; Centre d’Affaires Paris-Trocadéro; Compagnie Foncière de la Méditerranée; Crédit du Nord; Eléaparts; Fimat Banque SA; Fimatex; Gefa (Germany) ; Généfim; Généfimmo; Généfinance (U.S.A.) ; Généfitec; Génégis I; Généval; Géninfo; Intersogé (Switzerland) ; Lyxor Life Ltd. (Ireland) ; National Société Générale Bank (Egypt) ; Nofirec; Patriges Gracechurch; PDI Properties Ltd. (Great Britain) ; Pt Bank SG Indonesia (Indonesia) ; Réalia (Belgium) ; SA Théâtre de l’Olympia - SATO; SG Asia Ltd. (Hong Kong) ; SG Asset Management; SG Energie; SG Expressbank (Bulgaria) ; SG Finance Praha (Czech Republic) ; SG Hambros Ltd. (U.K.) ; SG Hungaria Bank RT (Hungary) ; SG Securities Asia Intl Hold Ltd. (Singapore) ; SG Securities Johannesburg (South Africa) ; SG Securities Madrid (Spain) ; SG Vostok (Russia) ; SG Yugoslav Bk Dd Beograd (Yugoslavia) ; Socgen Real Estate Company LLC (U.S.A.) ; Société de la rue Edouard-VII; Société Générale Australia Holding Ltd. (Australia) ; Société Générale Bank Nederland N.V. (Netherlands) ; Société Générale Canada (Canada) ; Société Générale de Banques en Côte-dTvoire (Ivory Coast) ; Société Générale Finance Ltd. (Ireland) ; Société Générale Investments (UK) Ltd.; Société Générale Marocaine de Banques (Morocco) ; Société Immobilière 29 Haussmann; Sofital (Argentina) ; Sogé Colline Sud; Soge Périval I; Soge Péri val II; Soge Périval III; Soge Périval IV; Sogéfontenay; Sogen Finanziaria S.P.A. (Italy) ; Sogen Singapore Merchant Bank; Sogéparts; Sogessur; Soginfo; Super Twin Dragons Ltd. (Hong Kong) ; Valminvest; Werbrow Holdings (Ireland) .

Principal Competitors

ABN AMRO Holding N.V.; Banca Nazionale del Lavoro S.p.A.; BNP Paribas Group; Crédit Commercial de France SA; Crédit Lyonnais; Credit Suisse Group; Caisse Nationale de Crédit Agricole; Deutsche Bank AG; IntesaBci S.p.A.; Natexis Banques Populaires; UniCredito Italiano S.p.A.