The Reserve Bank of Australia's cycle of interest rate cuts has created a demand among high-net-worth individuals for higher-yielding products. In May, it implemented its second cut in 2015 and its third in less than two years, dropping the benchmark interest rate to a record low of 2%.
Societe Generale was able to take advantage of this having integrated a successful licensed futures business in Australia following the absorption of the Newedge business in May last year, allowing the bank to expand its offering, especially in structured products.
The bank's first onshore issuance came in June, a deferred purchase agreement structure that utilised the Newedge license and was issued through the distribution channels the bank had already established for the wholesale business.
"We expanded our presence in the market over the past 12 months, driven by the needs of clients and our distribution partners," says Robert Harrison, senior relationship manager, financial institutions for Australia at Societe Generale. "Structured products in Australia among high-net-worth individuals have typically not been that popular because underlying interest rates in Australia were historically high. For the past 20 years, they averaged around 5%. But as the reserve bank cut interest rates to a record low of 2%, that has driven interest back in the structured products sector," he says.
Since the launch, the bank has completed 12 mandates in two different currencies, the Australian dollar and the US dollar, for equity-linked notes, with the underlying stocks predominantly domestic equities.
In addition, Societe Generale now has a larger all-round offering with the Newedge platform, able to extend structured, over-the-counter derivatives to Newedge's clients and at the same time provide a more complete prime brokerage offering.
"We've got the synergy between Societe Generale and Newedge - now they're one client base," says Harrison. "The good thing about having the integration is you become relevant to more clients. Being able to distribute Societe Generale's products to Newedge clients that perhaps we didn't have a relationship with before."
A further major success for the bank was within the institutional investor segment, with the team closing two major deals because of its ability to create international products for domestic investors and structure bespoke OTC transactions in the Australian market.
"The pension market here has become so large - more than A$2 trillion ($1.47 trillion) - that clients are seeking international investments. We have a clear identity as a European powerhouse and an equity derivative and structured products specialist," says Harrison.
By way of example, Societe Generale structured an A$300 million long/short equity risk premia swap with a domestic institutional investor, using its dynamic portfolio swap platform. The platform allows exposure to a basket of stocks under a single swap, covering a universe of 1,600 stocks across six major indexes in Australia, Japan, UK, Europe, US and Canada.
Another deal was in partnership with an Australian asset manager, centring on an equity derivative transaction linked to Australian stocks of which the bank has traded over A$1 billion so far this year.
"The motto of the bank is team spirit. There were around 20 people working on the institutional side for these transactions across several countries," says Harrison.
"We work closely together and a client dealing with Societe Generale on a structured products transaction will have a deep relationship with five or six key people in the bank. That's important because these are innovative transactions," he says.
One portfolio manager at an Australian asset management firm notes the bank's thorough reporting enables it to stay on top of movements in complicated transactions.
"Whereas some brokers take in orders in an ad hoc fashion, Societe Generale is more systems oriented and we can output trades directly from our models into its templates, helping to remove the fat finger error that can happen," says the portfolio manager. "Sometimes trading desks can be a little bit hostile, but the Societe Generale desk has been willing to accommodate us and work with us a little bit more."
The bank's customer focus and structuring capabilities has made it one of the best trading options, according to one institutional investor.
"We are extremely happy with the services provided by Societe Generale. We have compared them to five other brokers during the past 18 months on some large structured derivative trades and they have outperformed the lot with a wide margin in terms of reliability, pricing, operations and client focus," says the investor. "They are my department's ‘go-to' broker."
The bank's approach to the Australian market, stepping in and providing products when other banks have retreated, has more than tripled its structured products sales volumes.