You May be Right…

C’est reparti! Plus ça change, plus c’est la même chose.

One of my very favourite poems is this (I wonder why):

He that buys land buys many stones,
He that buys flesh buys many bones,
He that buys eggs buys many shells,
But he that buys good ale buys nothing else.

It returns to me frequently – especially when there’s another rumour about SGSS being up for sale, in negotiations, considering its options, blah, blah, blah.

The last time this happened was in 2021, when SGSS reset its UK business plan (a decision that was subsequently reversed). The original decision lit up the market, with intense speculation about whether SGSS had any future, potential buyers, exit strategies, blah, blah, blah.

Now, I am not comparing SGSS to a good ale, or a fine wine, but before anybody gets too excited about what may or may not be happening, let’s look at some cold, hard facts (rather than what the teenage scribblers or “market share” analysts might be peddling).

First, SGSS has a fantastic franchise. Ever since it bought 2SBanca in 2006 (and European Fund Services), SG has managed its securities services business very effectively. Successive leaders have reshaped and refocused the strategy – strong in Europe, significant offshore market share through Luxembourg and Ireland, a class-leading proposition for private assets, a very smart workforce, and some impressive tech – with the 2023 results confirming that this is a well-positioned, stable and growing franchise.

Second, who wants to be an undertaker? Certainly not Arnaud Jacquemin, who was appointed as SGSS head in 2023. A senior figure in the bank, who was previously CEO of the bank in Luxembourg, Jacquemin has already made his mark – and it seems highly unlikely that he would have accepted the position if he’d thought he was merely tidying it up for sale. Under him, he has a highly talented and motivated management team, all of whom understand the strategy and know how to execute. And another, maybe small, pointer – SGSS in Luxembourg, managed through a major transformation process very effectively for the last five years by Mathieu Maurier, was rewarded for its sustained run of success with sparkling new offices in Belval, moving out of the less salubrious surroundings of the Luxembourg train station. Do you do that if you’re thinking of selling the business?

Third, some of the “reporting” has been little short of incompetent. Take Bloomberg: it “broke” the story about State Street discussing a potential acquisition of SGSS. But here’s the thing: Bloomberg broke essentially the same story in 2023 – same price tag, same advisor (Citi, so no conflict there), but no State Street. Oops. Each story took three reporters. Really?

The State Street thing is not insignificant. Its head of France, Christophe Baurand, is ex-SGSS. His COO, also from SGSS, is Olivier Blanc. State Street is still hurting from its failed bid to acquire the investor services business of BBH – but SGSS? Surely not – unless someone in Boston happens to have ambitions to be big in France. Even BNP Paribas ultimately accepted that being big in France meant absolutely nothing. And, if you don’t have a sizeable EUR loan book, what are you going to do with all that liquidity that SGSS generates?

‘Twas ever thus. In 2012, an analyst from Citi (what a coincidence!) suggested that Société Générale might sell its securities services business for “over EUR4bn” (USD5.1bn), followed by immediate speculation that State Street was mobilising its M&A stormtroopers. Conveniently, SG had already said that it would raise EUR4bn of capital from disposals by 2013 – voilà!

Stones, bones and shells – these are the inevitable by-products of every acquisition. The clever part comes from knowing where they lie, and how to get rid of them. In truth, SGSS probably has a cleaner client book, and O&T infrastructure, than most. But the challenges are still substantial: how many potential buyers will want a three-pillar strategy across investor, intermediary and issuer services, for example? Not many – and those that do have already built their own solutions and architecture.

To the wider market, SGSS is worth a lot more as an independent provider than as an add-on to a much larger franchise. After all the work done by successive directors, it deserves to remain within the group. (And, BTW, if you know the line that comes after “You May be Right”, you’ll know exactly what I’m thinking.)

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