Global multi-asset broker Newdege will offer clients a “very different value proposition” now that it is 100% owned by Société Générale, according to CEO David Escoffier.
Escoffier was appointed to replace previous CEO Nicholas Breteau in November 2013 and Société Générale completed its acquisition of the 50% of Newedge it did not already own from fellow French banking group Credit Agricole in May this year.
“This transaction gives Newedge the ability to project ourselves much more than before. Now, clients see a firm with which they can have a stable long-term relationship, and with which they can innovate and develop products,” said Escoffier, who retains his position as deputy head of global markets at Société Générale Corporate and Investment Banking.
In a press release confirming the conclusion of the transaction last month, Société Générale said the combination of Newedge’s execution and clearing services in listed and OTC derivatives with its parent’s global corporate and investment banking franchise would offer clients an integrated service including prime brokerage, agency and direct execution, research and tailored investment solutions.
In particular, the deal will help Société Générale to offer a coherent post-trade services proposition to institutional investors, in part by aligning Newedge’s capabilities more closely with those of Société Générale Securities Services (SGSS). As stated by Christophe Mianné, deputy head of the bank’s global banking and investor solutions group last month, it also offers “the financial guarantee and financing capabilities of a leading bank” to Newedge’s largely hedge fund client base.
When announcing its strategic priorities for the next two years in May, Société Générale said its global banking and investor solutions group would focus on integrating Newedge and developing its prime services, custody and fund administration platform and value-added post trade services, with a view to growing annual revenue by 12% by 2016.
The acquisition comes at a time when the futures brokerage industry is under unprecedented cost pressure, due in part to reduced volumes and the impact of regulatory change. Newedge’s primary competitors in the sector – JP Morgan and Goldman Sachs – are already part of large global banking groups, while a number of firms have closed their doors in recent years.
“We want to maintain our market position. We want to aggregate volumes. The industry is changing and consolidation will continue. Firms are exiting for the first time but capacity is still way higher than demand,” said Escoffier.
As well as working more closely with SGSS in the post-trade space, it is expected that Newedge will leverage its parent’s traditional strength in equities and equity derivatives.
“Clients will have access to a full collateral offering, which means they will be able to re-finance and cross-margin their positions,” Escoffier said. “Newedge uses a VaR based model to cross-margin between listed and OTC products. Now, we have the backing of a large bank to provide global collateral transformation capabilities. The ability to identify and transform diverse pockets of collateral presents a significant upside for our clients. This is where SocGen’s capabilities in the repo and equity financing markets will come to the fore.“
Because Société Générale runs a large equity financing desk, primarily servicing pension funds with long-term equity positions, Newedge will now have a greater capacity to serve the short-term stock borrowing needs of its hedge fund clients. Similarly, Newedge will be able to benefit from its parent’s membership of CLS Bank for FX settlement and extensive exchange membership. Société Générale’s global markets division can now provide DMA for 125 markets. Escoffier also expects the group’s agency brokerage model and experience of electronic trading in the equities and futures markets to stand it in good stead for the current changes taking place in the OTC derivatives and fixed income markets, where regulatory reforms are driving greater levels of automation.
“FICC 2.0 will be very much like the equity markets: more listed, more transparency, more market making and possibly even one day commission based,” he said.
Noting that a number of global banking groups are looking to sell-off or reduce their capacity in wholesale financial markets, Escoffier asserted that Société Générale’s commitment to global markets activities had full shareholder backing, as evidenced through the group’s allocation of 20% of its risk-weighted assets to RWA global market activities.
“For clients, the biggest change is that we now have a stable shareholder that is full committed to our business in a period of market concentration,” he said. “While others are downsizing, we are building on our specialist expertise in multi-asset derivatives clearing, execution and prime brokerage."