The two banks have signed a Business Purchase Agreement for the sale of Commerzbank’s Equity Markets & Commodities business (EMC) to Societe Generale following the initial agreement announced on July 3rd, 2018.
The EMC business comprises manufacturing and market making of flow and structured products as well as part of German bank’s asset management activities including the exchange-traded funds (ETF) franchise. The Equity Capital Markets (ECM), the Equity Brokerage (equity trading and equity sales/brokerage) businesses as well as the hedging business for commodity risks of Commerzbank are not part of the transaction.
After completion, the French bank will be responsible for the management of income payments, early redemptions and maturities on Commerzbank's structured products book, which includes over 500,000 live products across jurisdictions. In 2017 Commerzbank's EMC business generated €381m gross revenues.
‘Until the effective transfer of the business, Commerzbank will remain responsible for all new issues, market making and service activities for all relevant products,’ stated Commerzbank.
There will be no changes for existing investment products and flow products issued by Commerzbank, and issuance will continue with a transfer overtime of the issuer to Société Générale instead of Commerzbank. The existing product range will be maintained and updated by Commerzbank.
Commerzbank was the fourth most active issuer in the retail structured products market in Europe in 2017, with over 160,000 products marketed –excluding flow and non-retail, worth over €4.6 billion, and a 4.2% market share, according to SRP data. Globally, the German bank has a 2% market share across €8.1 billion in sales. SG issued over 117,000 products in 2017 with an estimated volume of €5.8 billion, and has issued almost one million structured products, of which 359,328 are still live. Globally, Commerzbank has a 1.57% market share and Societe Generale a 3.2% market share, year to date.
“This transaction would enable SG to consolidate its leadership on structured products,” said a spokesperson at the French bank.
The transaction includes the transfer of EMC’s trading books and client franchise, staff, as well as parts of the IT infrastructure. EMC front office employees and certain employees of associated support functions would be integrated by Societe Generale and Lyxor. The staff integration and the transfer of trading books as well as its associated assets and liabilities are expected ‘to take place gradually, starting in 2019, once the relevant approvals are obtained’.
The transaction has been approved by the employee representative committees in Germany and remains subject to the approval by relevant authorities.