French bank Société Générale has agreed to create a joint venture with US investment company AllianceBernstein, with the two financial groups merging their equities research and cash equities businesses.
The deal, announced on Tuesday morning, will create a global player in equities services that SocGen will have the option of buying outright five years after it launches, which is expected to happen by late 2023.
The merger has been discussed since last year by Seth Bernstein, AllianceBernstein chief executive, and Slawomir Krupa, head of SocGen’s investment bank, who is due to become group chief executive in May next year.
“What you should expect from me is trying to create value — that’s for sure. This is what we are doing here,” Krupa told the Financial Times.
Krupa has been handed the task of rebooting the French bank after years of restructurings and underperformance compared to European peers.
Under his leadership, the investment bank has tried to move away from a reliance on equity derivatives — exotic financial products that caused heavy losses for the bank at the outbreak of the coronavirus pandemic.
SocGen will offer its corporate and investor clients a wide range of equities services alongside those within the joint venture, including equity capital markets, equity derivatives and prime broking.
The joint venture will allow SocGen to compete head on with its Paris rival BNP Paribas, which bought out its equities joint venture, Exane, last year.
For AllianceBernstein, the deal could eventually see the investment group with $627bn of assets under management part ways with the research division that has been a key part of the company throughout its 55-year history.
“There were a lot of things we needed to grow in our businesses but we didn’t have the resources to give our sellside team what they needed in Asia, in the US and in Europe,” Bernstein said. “We had to make choices.”
Four years ago, AllianceBernstein’s research arm bought Autonomous Research, which specialises in financial institutions and will be included in the joint venture.
The new business will be headquartered in London and led by Robert van Brugge, currently chief executive of AllianceBernstein’s research arm, with Stephane Loiseau, head of SocGen’s cash equities business, becoming his deputy.
SocGen will own 51 per cent of the new venture, with AllianceBernstein owning the remaining 49 per cent.
Krupa said that because the two businesses had little geographic overlap — with AllianceBernstein strong in North America and Asia, and SocGen bigger in Europe — there would be minimal job cuts and loss of clients.
SocGen said the deal would result in 15-20 basis points of additional return on tangible equity by 2025, with around 10 bps impact on the group’s common equity tier 1 ratio.
Both companies’ boards have signed off on the merger, although it will still require regulatory approval.