In one of the least surprising announcements of the year so far, have announced that the French bank is selling its Asia private bank, although retaining commercial links with DBS. The move has been the talk of the wealth management circuit since last autumn and in recent weeks DBS was very much seen as the front-runner. So it has proved.

What the deal underscores is that, while there is a lot of talk about how Western firms have been beating a path to Asia in pursuit of the expanding and affluent middle class in the region, getting the business to succeed is easier said than done. This publication has sought to get answers from SocGen on why it has agreed to sell a business for the not particularly strong price of $220 million (paid when the deal is complete). The deal will bring over $12.6 billion in assets under management, adding to a DBS business that at the end of 2013 had S$69 billion ($65.6 billion) of AuM for high net worth clients, and S$125 billion of AuM across the entire wealth business. (The price paid by DBS for the private bank represents 1.75 per cent of AuM.) The transaction also includes selected parts of SocGen’s trust business. Going forward, DBS clients will have access, so DBS says, to selected services in Europe. And it certainly isn't the case that SocGen has sold the business off in a desperate need for cash - recent results have been pretty solid when set aside those of others. (See here for a summary of banks' full-year and quarterly results.)

Mazaud's view
This publication spoke today with Jean-François Mazaud, head of Societe Generale Private Banking, about the transaction and the reasons for it.

In particular, Mazaud stated that obtaining a share of the Asian wealth is not as easy as some people might assume: "Asia remains a fast growing region for the wealth management industry. However, the wallet is not always easily accessible. As part of its development strategy, SGPB has decided to concentrate its priorities and investments in the markets where it is best positioned to further develop its client reach and its competitive advantages for the benefit of its clients. SGPB is rolling its ambitious strategic development plan in Europe where it is a leading player. Through the MOM we have signed with DBS, we will be able to continue to answer our clients’ needs in Asia on a B-to-B-to-C basis," he said.

“The transaction allows us to free up investment capacities in order to accelerate our development in our core private banking markets and to further strengthen the services offered to our clients in Europe, Latin America, the Middle East and Africa," he continued.

"The MOU on commercial cooperation signed with DBS will also enable us to create a win-win partnership for both institutions and to leverage on our client value proposition across Europe and Asia,” he said. “Societe Generale, which has been active in the region since 1973, remains committed to Asia, in particular in corporate and investment banking, where it has successfully focused on its strengths over the past three years and reached a strong sustainable growth,” Mazaud said.

Asked if the sale reflected a failure to obtain the scale of business the firm has hoped for, Mazaud said: “SGPB Asia has been properly revamped and is now well positioned for growth. However, it would require further significant investments to take it to the next level, should we continue to operate the business on a standalone basis. Furthermore, as we have decided to concentrate our priorities and investments in the markets where we are best positioned to further develop our client reach and our competitive advantages for the benefit of our customers, this decision appeared to us as very meaningful.”

This transaction certainly does not mean that SocGen is pulling out Asia wealth management, he said. “We have entered into a memorandum of understanding with DBS to develop a commercial partnership combining the strengths of the two franchises for the benefit of their respective clients. The partnership will give Societe Generale Private Banking’s clients access to DBS’ Private banking offering in Asia, and DBS’ clients will have access to Societe Generale Private Banking’s offering in Europe, as well as to corporate & investment banking solutions,” he said.

Mazaud continued: “We intend to establish a long-term mutual cooperation with DBS in a wide range of services from structured products to private banking, where we will include a cross referral of clients and cross-booking possibilities, access to SG fund solutions services & research and mutual access to a more tailor-made financing offer and dedicated investment vehicles for qualified clients. Remember also that Societe Generale operates a wealth management activity in China through its international retail banking division. This activity is not part of the DBS transaction and Societe Generale will continue to serve clients in continental China through its offices in Beijing and Shanghai.”

Finally, Mazaud argued that the price obtained for the bank – originally started in 1997 – was not a weak one, taking in other factors: “We fare well when compared to similar transactions having taken place since 2011 in the industry. It is also important to note that, as well as receiving a cash consideration on completion of $220 million for the franchise (subject to adjustment based on the net asset value and assets under management at completion), Societe Generale group will free up around $200 million of equity."

Speculation
Back in August last year, Societe Generale spoke about its Non-Resident Indian business that is run out of Singapore, for example (see here). The NRI space has been intensively competitive lately, and the movement of NRI teams has been a staple of the moves items reported here and elsewhere.

Speculation began about whether this Paris-listed bank was going to stick with its Asian adventure when the firm agreed to sell is Japanese private banking business last July. While the Japanese banking market has its distinctive features – it has traditionally been very hard for non-domestic players to enter – such a move was bound to set tongues wagging that other sales were on the cards. And then it is worth remembering that Societe Generale has been recovering from the 2008 financial crisis and reducing risks on its balance sheet, including Greek exposure. While private banking is not a capital-intensive business (or it shouldn’t be), if a unit is not contributing as much to the mother ship as it should, then it is easy to see why the high command back home in France decided on a re-think.

Asia may be home to many of the world’s new rich, but it is also an expensive home. Although jurisdictions such as Hong Kong and Singapore are taking steps to curb red-hot property prices, doing business in these places is expensive. The French bank may have wisely concluded that for all the progress it might have been able to make with its private bank, the benefits were not quite big enough to justify the pain. And with expansion and development taking place closer to home, this is where the bank has decided to focus its energies.

There is not much doubt about what DBS is looking to do. DBS has taken a significant rise up the Asian and global wealth management league tables; and in the Asia market, having a big presence, a visible brand with lots of coverage is highly prized. As with politics and sport, so there is a lot to be said for having what strategists call “momentum”.

As ever – as we have reported recently on the Julius Baer/Merrill Lynch transaction – the key is migrating client money and managers as harmoniously as possible, which is often hard to pull off. DBS said the transaction accelerates its ambition to be the leading wealth management in Asia. Well, time will tell.