Structured Products Europe Awards 2016
France is traditionally one of the core European markets for structured products, and within that market Societe Generale enjoys a position of pre-eminence. But in a market beset with the same worrying features that persist across the rest of the continent, the bank has not been content to rest on its laurels; rather, it has been at the forefront of invention, both in terms of new products and new alliances.
Societe Generale's creation of new indexes – in particular the Euro iStoxx Equal Weight Constant 50 – has caught the eye of many admirers. The index replicates the return of the Euro Stoxx EWC 50 while assuming a constant dividend. Unlike the original Euro Stoxx 50, each stock is given equal weighting to avoid concentration risk.
By paying a fixed dividend the index ensures a guaranteed return to investors, and it is also more competitively priced than many alternatives. Since its launch in 2015, the index has raised more than €3 billion ($3.2 billion) in France and has more than 50 clients who have executed in excess of 150 trades.
Laurent Besnainou, head of global market sales at Societe Generale in Paris, says clients of all different types and classifications have been attracted to the index since it was unveiled. "It has been a great success for the French market. It appeals to clients that are comfortable with a 5-8% yield and want protection in the case of markets going down less than 30-50% depending on the profile."
He adds that the in-house research team at the bank allowed careful study of dividends on a large number of stocks over a 10-year period or more to be conducted before the index was put together. The key personnel in Societe Generale's cross-asset structured products team have been there for 10 years or more, giving the shop a continuity and consistency with clients that few can match, he argues.
The lack of "visibility", as Besnainou terms it, surrounding equity markets has helped drive clients search for yield – and has also given a fillip to the repack market. The bank is one of the pioneers of the sector, and it foresees strong demand while these conditions persist.
Repacks, which often follow a straightforward fixed-floater structure, offer an upfront yield better than that available in the cash market, while providing the possibility of participating in higher rates if and when yields improve. For instance, a repack of the French treasury bond due 2038 could offer the buyer a fixed coupon of 0.92% until 2020, and thereafter the CMS 20-year minus 50 basis points, capped at 6% and callable after five years.
No sector has been immune to the hit from shrinking yields, but few have been harder pushed than France's vast life insurance market, which has a value of around $150 billion. Historically, life insurance companies have offered guaranteed investment vehicles to their savers, which offer total capital protection. But razor-thin yields have cut deep into margins.
To counter these difficulties, Societe Generale has designed a new capital-guaranteed product in association with CNP Assurances, the French insurer with yearly revenues in excess of €3 billion, which offers a trade-off between protection and return by offering exposure to equities.
The product was launched at the end of 2015 and in March 2016 a new ‘flexi' version was unveiled, designed to appeal to wealth management clients. With an additional deposit of €150,000, investors can choose to have 100%, 98% or 95% of their investment guaranteed and whether it matures in two, three, four or five years. Since launch, some €150 million has been raised.
"It's a real success story. We have a very useful relationship with SG. They are hugely flexible and innovative," says Pascal Hunaut, business development manager for high-net-worth individuals at CNP.
While Europe's vast overhaul of its disclosure regime – the Packaged Retail and Insurance-based Investment Products regulation – has been delayed by a year, Societe Generale is ready to meet it. "We always adapt to new regulations. We're ready for it and not frightened of it. It might, in fact, be an opportunity for us as other banks are not as prepared as we are," suggests Besnainou.
Despite the macro headwinds, the bank is fully confident that it can maintain its pole position over the coming years, he says. "Over the last two years we have continued to innovate and we try to innovate differently to everybody else. We try to think outside the traditional investment bank box by creating partnerships with asset managers, index providers and insurance companies, so we give clients the best of all worlds."
The week on Risk.net, December 2–8, 2017Receive this by email