Why are we talking about a potential takeover of Société Générale?

Why are we talking about a potential takeover of Société Générale?
Why are we talking about a potential takeover of Société Générale?

Statements from Emmanuel Macron, saying he was open to a hypothetical takeover of the French bank Société Générale by the Spanish giant Santander, have stirred up the banking world.

Is Société Générale for sale? It was a short statement from Emmanuel Macron that shook the banking sector at the start of the week, suggesting that a takeover of the French bank by its Spanish competitor Santander was not an impossible scenario. In reality, however, such a possibility is unlikely to materialize at present.

• Why are we talking about a sale?

During an interview on Monday evening, the American financial channel Bloomberg TV asked Emmanuel Macron (in English) about a fictitious example of the Spanish banking giant Santander wishing to buy the French banking group Société Générale. To this question, the President of the Republic responded that he was open to a potential takeover of a French establishment by another European bank, without having explicitly cited Société Générale in his remarks.

“It’s part of the market, acting as Europeans means you need consolidation as Europeans,” Macron said, adding that cross-border mergers could “certainly” be possible in the banking sector.

• Why was Societe Generale mentioned?

If we focus on the three large banks listed on the Cac 40, Société Générale is the least valued by investors: assuming that a foreign establishment wanted to buy a French bank, it would be the easiest prey. Its market capitalization weighs 22 billion euros, much smaller than BNP Paribas (80 billion euros) or Crédit Agricole SA (47 billion euros) – the latter, moreover, belongs to the regional banks of the Crédit Agricole group.

Furthermore, the current trend is not favorable for “SocGen” either: the Société Générale share price is still 15% lower than its level just before the pandemic. And the title is less expensive than that of its competitors. According to a September presentation by the establishment, the stock market value of Société Générale represented 0.4 times its balance sheet (to simplify), compared to 0.8 times on average for nine other large European banks. However, on the stock market, the cheaper a stock is, the more theoretically interesting it is to acquire it.

Emmanuel Macron’s statements, even if they did not specifically cite Société Générale, gave renewed energy to speculation on banking consolidation.

• Are European banks too small?

Calls for consolidation of the European banking sector are regularly launched on the Old Continent, notably from the European Central Bank (ECB). Apart from the British giant HSBC, no bank in continental Europe or the United Kingdom appears in the top 15 global banking institutions in terms of market capitalization, that is to say the total value of shares.

In addition, after going through the health crisis, many banks recorded record profits with the rise in interest rates, which gives them more room for major maneuvers.

• Is such an operation really possible?

Concretely, at present, a cross-border operation is an unlikely hypothesis in Europe. The European banking market is split between different countries where the rules are not the same (fixed rates in France, for example, and variable in other countries), which limits the synergies that would be generated by a takeover of a bank. a European country by another establishment in another country. However, synergies are the whole point of a buyout operation.

“Only a domestic player can buy another domestic player,” the general director of BNP Paribas, Jean-Laurent Bonnafé, recalled on Tuesday during the group’s general meeting.

Takeovers of small establishments by large groups from other European countries are not rare (BNP Paribas, for example, bought the Polish bank BGZ in 2013), but it is difficult to find examples between two large European players.

Jérémy Bruno with AFP Journalist BFMTV

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