House of the year, Asia: Société Générale

Yann Garnier

The stars have aligned for Société Générale (SG) in the Asia-Pacific region over the past 12 months, with one and all finally getting to grips with the French bank's multi-asset capabilities while fears over counterparty credit risk slipped away.

The result was a structured products team that is adept at offering all asset classes increasing its size and influence in most countries across the region. "SG has very humble and responsive sales and structuring teams," says Wee Cheng Lee, associate director for capital markets investment products, wealth management, Asia-Pacific at Citibank Singapore. "They are constantly on the lookout for new ideas and to share new payouts, which do not faze them - they are normally the first party to respond with indicative pricing."

Société Générale has spotted the opportunity offered by competitors falling away or even leaving the business, and has pounced on it with alacrity. "Over the past year, you were always hearing about risk-on and risk-off, but now markets are back to a norm and credit is better understood," says Yann Garnier, Hong Kong-based head of Asia-Pacific sales, global markets at the bank.

"Over the past 18 months, the structured products team grew by around 10 people as our competitors were downsizing, and we have added institutional investors as well as new distributors," says Garnier. The bank has added two staff to its cross-asset solutions in Japan, three in South Korea, two in each of greater China and Singapore and one in South-east Asia.

"We are very proud of creating this cross-asset factory, which also enables us to have good risk management," says Marc Saffon, head of financial engineering, cross-asset solutions, global markets, Asia-Pacific at SG in Hong Kong.

Daisy Hsiao, senior vice-president, private banking at BNP Paribas Taiwan, who covers equities/foreign exchange hybrids, equities, rates, and forex, favours SG, especially when it comes to equity-linked structured products. "SG has the best pricing, mainly because its funding is better," says Hsiao. "It is also quite innovative on product ideas, initially around some hybrid ideas that we picked up, which had a forex-equity mix."

Marc Lansonneur, regional head of investment and market solutions at Société Générale Private Bank in Singapore, is also a fan of the French bank's cross-asset strategy. "They are our favourite providers - they cover all assets classes and have been providing us with competitive and innovative structures on credit, equities, foreign exchange and commodities," he says.

The bank trades between 30 and 40 bespoke deals each day across Asia-Pacific and has one of the biggest correlation books in the region across the five asset classes that it covers regularly. "A uniform view of the risk allows us to have a larger book than others in the region," says Saffon.

At the end of its internal processes, the bank applies a quality test on the $1.5 billion of structured products it sells each month. "Previously, we were cross-asset, but now we are a structured products factory, because we can do any kind of product on any kind of asset in the region, both from a client point of view and from a risk management point of view," says Saffon.

The breadth of asset classes and payout types, as well as its ability to combine asset classes in pairs and trios, has opened SG to more innovation. The bank has sold more than 40 combinations of assets in products over the past year, according to Garnier.

Saffon adds: "Two years ago, we were trading one hybrid every two weeks. Right now, though, we trade two hybrids a day. We have been able to customise these for every client, in large or small tickets, because of the factory."

As far as risk management is concerned, the bank's book is naturally more diverse because of the inclusion of all asset classes and product types. Risk is not concentrated on one parameter, with the size of the book and a limit for each particular risk category, after which the banks stops quoting the relevant product, says Saffon.

The bank can also do new products with slightly different sensitivities to mitigate the risk of the part of the book that is almost full. "We are also macro hedged against tail risk or catastrophe risk," he says.

Another pillar of SG's success is built on caring for its investors. "It can relate to our retail offering process by accommodating our requirements on issuance size and special client requests for exotic underlyings," says Citi Singapore's Lee.

Part of looking after the needs of investors with the provision of hybrids for those that are hungry for yield has meant SG has built the biggest correlation trading book in Asia, in which it has combined more than 30 cross-asset pairs and five cross-asset trios. The bank has derived hybrid range accruals in all combination pairs - with 10 pairs and five trios representing 42 underlying combinations.

The bank was closing in on $2 billion nominal of hybrid structured products in the year to date at the end of June, with most of the 111 products sold in South Korea, Taiwan, South-east Asia and Hong Kong. "The market has changed and a product with a double upper range on equity has been developed: if equity goes above a certain level, this 10-year product will no longer perform. Because we care for our clients, we have refused to quote when these products do not suit their medium-term interest," says Garnier.

He offers an example of a dual range hybrid in Taiwan with an upper barrier that is relatively close to spot on the relevant equity indexes. "We have testimonies from clients, some of which have called us to thank us for our good advice. And we have a very large distributor that asks how we can refuse business for a month or two while we change our product range - but that is what we do when we carry out our product testing," says Garnier.

Nancy Cheng, assistant vice-president of the structured notes business at Taishin Bank in Taiwan, also likes SG for its innovation, its multitude of ideas and its ability to adopt the perspective of investors in order to asses which products suit them best.

"SG's pricing is competitive and produces attractive ideas for clients," says Cheng. "Its office and sales service is excellent, and the long tenor and hybrid products linked to forex and indexes have been very good. For the quarterly callable product, the tenor is 12 years and the link is to a hybrid index such as Eurodollar while the other underlying is the S&P 500. "

Taishin sold around $50 million equivalent of the quarterly callable principal guaranteed products over the past 12 months at coupons of 6-8%.

Société Générale has also been commended by Jamie Huang, product manager in the structured note business of the trust department at Mega International Commercial Bank in Taiwan, for its innovative ideas and its ability to deliver the best pricing and after-sales support in the region. SG was the creator and issuer of Huang's favourite product of the year - a hybrid note linked to the S&P 500 and the US dollar/yen spot price where both currencies were without an upper limit.

In addition to extending its structured notes franchise in Taiwan, SG has the biggest custom index platform in the region, with regional assets under management in excess of $5.7 billion. As well as securing a significant share of the market in Taiwan, work has also paid off in adapting European or US payouts in local currencies, which includes a leading role in the Korean won.

The bank was also praised for its innovation and after-sales support by Morris Huang, senior assistant manager in branch banking and investment at Citibank Taiwan. Huang says SG provided Citibank with his favourite products of the last 12 months, which included a dual range accrual.

The multi-asset strategy remains most effective in SG's variable annuity business in Japan, where the underlying sold to investors is a balanced index linked to Japanese and global equities and bonds, with rebalancing carried out according to criteria such as volatility. "We have a dominant market share in Japan, and we have probably the largest assets under management on the proprietary index on this strategy," says Saffon.

The French bank has extended this concept to more asset classes via the Harmonia Index, which is a similar structure but is based on more fragmented asset classes, such as emerging and developed equities, high-yield and developed bonds, commodities, gold and real estate. The strategies rebalance the underlyings on the basis of risk.

The bank has raised more than $470 million worldwide, most of which has been sold in Asia - mainly in Japan and China, according to Saffon. As of June 10, 2013, the bank said the SGI Harmonia index had shown a year-to-date increase of 6.52%, with the most recent trade completed in China with a retail bank.

When deciding which strategy to adopt with its index business, SG decided to concentrate on the multi-asset indexes rather than those based on volatility. "In Asia, we believe investors were more interested in cash asset investments than they were in the risk-hedge overlays seen in pension funds in Europe or hedge funds in the US," says Saffon.

The final feather in the bank's cap is the changed attitude in the region to credit exposure. "Last year, we discussed flexibility in credit risk management," says Garnier. "Some were saying that because we are a European bank, some of our investors were not super-confident in taking a medium- or long-term exposure to our name, and we were working on vehicles that could include collateral asset support to our name.

"The fear has completely vanished, but we have continued to work on this and have launched a secured debt issuance programme called SGIS, which is a debt instrument guaranteed by SG and supported by collateral assets monitored by Bank of New York Mellon." Investors are able to choose the collateral assets they may want to hold, he says. "We have continued to work on this, as credit risk has a price."

The bank continues to educate, building on an established programme that has led to the creation of 25 client events across the region over the last 12 months to an audience of more than 1,200 investors, including institutionals. SG's main event remains the Asian Insurance Forum, which attracts more than 100 managers from life insurance companies to product presentations. These larger forums are complemented by 50 on-site or in-house training sessions, which have attracted more than 500 distributors.

And all of this comes with cross-asset research, with the equity portion conducted in alliance with JI Asia, a regional research house that SG has worked with since June 2010.