February 2, 2014 12:46 pm

SocGen beefs up US and Asia bond trading units

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Société Générale is expanding its bond trading business in a move to get a stronger global foothold as most of its European banking rivals are cutting back.

France’s second-largest lender by market value plans to add up to 150 staff to its 1,070-strong trading workforce in Asia and the US this year as it aims to build up its credit, rates and currencies business, people close to the situation said.

It comes as competitors such as UBS, Credit Suisse, Barclays and Deutsche Bank are reducing staff and capital in their fixed income units in an effort to cope with falling revenues, stricter capital rules and a costly move towards electronic trading.

SocGen, which declined to comment, is looking to take advantage of these withdrawals by building up a leaner technological platform, hiring staff and taking market share from rivals, according to people close to the situation.

The bank has a large equity derivatives trading business in a Europe-focused niche strategy which has been called the “haute couture” of investment banking. It also has a sizeable European interest rate trading unit, but is otherwise relatively small in fixed income.

The return to a global expansion strategy comes after chairman and chief executive Frédéric Oudéa has in the past few years propped up SocGen’s balance sheet and funding structure. Analysts expect SocGen’s crucial core tier one ratio for the end of 2013 to be around 10 per cent under incoming Basel III rules.

The group has been has been putting greater emphasis on its investment banking division, at the end of last year buying the half of derivatives broker Newedge that it did not own and selling its stake in the more stable asset management business Amundi.

In a move aimed at better serving its clients across the globe, it will focus its fixed income growth on credit trading, where it is a small player even in Europe, as well as its rates and currencies business in Asia and the US.

This comes as fellow French rival BNP Paribas is also adding staff in its fixed income operations across the globe.

Some analysts are wary about SocGen’s growth strategy. “To compete in fixed income you need a big balance sheet and not too many concerns over your capital strength,” said James Chappell, analyst at Berenberg, who believes that the bank still has a capital shortfall mainly stemming from the investment bank.

SocGen generated a return on equity of 8.6 per cent in the first nine months of 2013, but investors will be looking for more when the bank reports full-year results on February 12. Mr Oudéa said late last year that 10 per cent return on equity should be “a minimum”.

Additional reporting by Michael Stothard in Paris

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