SocGen Buys Commerzbank Markets Unit to Boost Germany Growth

(Bloomberg) -- Societe Generale SA is acquiring Commerzbank AG’s exchange-traded products and market-making operations as it expands in Europe’s largest economy.

The French bank fended off competition from bidders including Goldman Sachs Group Inc. for the business, which generated more than 350 million euros ($406 million) of revenue last year. SocGen will take over investment products and asset management businesses in cities including London, Paris and Hong Kong as part of the deal, it said in a statement on Tuesday.

Lenders in Europe including BNP Paribas SA and UniCredit SpA are seeking to increase their presence in Germany’s corporate banking market, which powers the economy. Commerzbank had put the business up for sale to cut its capital needs and focus on retail and corporate lending, while the deal allows SocGen to boost its structured products offering for German corporate clients.

The deal is “marginally positive” for both banks, Lorraine Quoirez, a banks analyst at UBS Group AG, said in a note to investors. It allows Commerzbank to deliver on its cost reduction program and SocGen “to consolidate market share in its core businesses at a reasonable price,” she said.

SocGen rose 1 percent to 36.4 euros as of 2:12 p.m. in Paris, while Commerzbank climbed as much as 2.4 percent in Frankfurt before paring gains to also trade 1 percent higher at 8.32 euros.

European banks’s interest in Germany has prompted speculation they could be interested in a larger part of Commerzbank as it completes a restructuring. Both BNP Paribas SA and Italy’s UniCredit SpA are said to have been in touch with the German government about buying its 15 percent stake in the rescued bank, while Cerberus Capital disclosed owning a 5 percent stake in July, making the U.S. buyout firm the second-biggest shareholder after the state.

Deutsche Bank

Deutsche Bank AG Chairman Paul Achleitner has also raised the possibility of a merger with Commerzbank and has sounded out top shareholders and key government officials on the matter, according to people with knowledge of the matter. There are no formal discussions and a deal isn’t said to be imminent.

The sale of the Equities Markets and Commodities unit also includes an asset management business representing about 13 billion euros and will mean the transfer of about 500 staff. SocGen said it expects to have approvals for the deal in place in the second half. Excluded from the deal are Commerzbank’s cash equity brokerage and commodities hedging business.

“It’s a good complement to our existing activities,” SocGen deputy chief executive officer Severin Cabannes said by phone. “It’s a real strengthening of our franchise and completes our German set-up.”

Commerzbank is seeking to cut expenses and focus on private and small business customers and corporate clients as part of its so-called 4.0 strategy. The bank said that its cost base will be at least 200 million euros lower by the end of 2020 as it transfers trading books and associated balance sheet to SocGen starting at the end of this year. Since Commerzbank announced the strategy, it has released more than 3 billion euros of risk-weighted assets.

“We are simplifying our business and we are freeing up capital for the benefit of our core business with private and corporate clients,” Commerzbank CEO Martin Zielke said in a separate statement.

©2018 Bloomberg L.P.

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