World’s Best Investment Banks 2019: Derivatives

Innovation and a focus on alternative risk transfer products give SocGen an edge in equity derivatives

European derivatives dealers found themselves at something of a crossroads last year. While their US cousins, having adjusted to the regulatory regime of a post-financial-crisis market, were making gains in a volatile market, European banks were playing a bit of catch-up.

For Global Finance’s Best Investment Bank for Equity Derivatives, Societe Generale, 2018 was a year of sometimes difficult change. Rumors and published reports anticipated the €500 million ($568 million) in cost-reduction measures that the bank announced in February—including 1,500 job cuts worldwide—in its fixed income and foreign exchange divisions. Societe Generale reported an 8.3% drop in revenue across its global markets and investor-services businesses in 2018 compared to the year prior, citing an unfavorable market environment impacted by political tensions in Europe and the trade war between the US and China.

Much of this represented a restructuring and refocusing rather than a retreat, however. Last June, Societe Generale announced it had reached agreement to acquire Commerzbank’s equity markets and commodities business, which is a manufacturer, distributor and market-maker in structured and flow products as well as asset management solutions.

As for its equity derivatives business in particular, “We went from being number one in structured products to an even stronger number one,” says Alexandre Fleury, head of equities and equity derivatives for global markets.

Innovation and adding new features to products have driven Societe Generale’s growth and solidified its status, says Fleury. One unique instance last year was the introduction of a philanthropic component whereby charitable donations can be made each time a trade occurs. “That has proven to be extremely successful with our private banking clients,” Fleury says. “We were also the first ones to get approvals for an environmental, social and governance index that we could have in retail distribution of structured projects.”

Risk management has also been part of Societe Generale’s success, specifically related to alternative risk transfer (ART). “If you look at 2018, the ART products were up 50% from 2017,” says Fleury. “There are two consequences to this. Even in 2018, which was a difficult market, we saw demand in ART products from our hedge fund and pension clients. So that was positive. The second consequence is that we were able to mitigate risk on our books. Compared to other banks with similar structured products, we outperformed them and did better than they did in Q4.” Client demand for ART products has been constant, Fleury says, despite some late 2018 sell-offs.

Citi took the title as Best Investment Bank for Credit Derivatives. In 2014, Citi was the first bank, post financial crisis, to bring back collateralized debt obligation deals (CDOs); and it has continued to ramp up the business since then. While not replicating precrisis deal levels, CDOs are no longer ratings driven.

“The nature of investors has changed completely,” Vikram Prasad, head of structured credit trading, said in an interview with International Financing Review. “They used to be concerned about return relative to the rating, but now they’re concerned about the underlying risks in the transactions.”

Tagged as Best Investment Bank for Interest-Rate Derivatives was Goldman Sachs. The bank set up a short-term macro group about two years ago that continues to trade foreign exchange and short-term rates products; and that has helped clients execute foreign exchange and cross-currency swaps leading up to the Brexit vote, for example. Goldman has also been investing in technology and new data analytics to make its derivatives sales force more effective and efficient.


Best Bank For Equity Derivatives Societe Generale
Best Bank For Credit Derivatives Citi
Best Bank For Interest-Rate Derivatives Goldman Sachs