The hypothetical sale of Societe Generale Securities Services (SGSS) could fetch more than 4 billion, according to a valuation by analysts at Citi.
This valuation precedes the analysts’ roadshow of French banks last week, as part of a series of regular meetings with their management, and was first reported in Financial News.
In a statement following the roadshow, Citi noted recapitalization issues faced by banks in Europe. It said announcements to date suggest that Euro area banks plan to sell assets worth at least circa 650 billion, or 7% of eurozone GDP.
Citi said Societe Generales Basel III targets require significant deleveraging and disposals and, even though the bank should be in a position to meet lower EBA capital requirements (2.1 billion versus the previous 3.3 billion), the sale of assets with funding requirements is naturally proving challenging. However, meaningful capital accretion from material disposals in the Global Investment Management and Services (GIMS) business, namely the custody operations, could significantly ease capital concerns, it said.
Citi said Societe Generales targeted 4 billion in disposals appears achievable. We believe its custodian, the second largest in Europe according to the company, with 3.36 trillion in AuC and 455 billion assets under administration, is one of its most attractive non-core assets for sale.
To illustrate SGSSs value Citi’s analysts looked at two recent deals: State Street acquired Intesas securities services operations in early 2010 at a price of 1.28 billion for 369 billion AuC and 141 billion assets under depository bank services, suggesting a P/AuC multiple of 0.3%; in early 2008, SocGen acquired the securities services of Unicredit at 195 million for 102 billion AuC, suggesting a P/AuC multiple of 0.2%. Using this range of multiples and applying a conservative discount of 50% could imply a price for SocGens custodian of 4.2 billion. In practice, discount unlikely to be this large, even in low interest rate environment, said Citi.
Citi analysts identified State Street as a would-be acquirer of SGSS following the custodian bank’s latest strategy presentation. Commenting on the presentation, the analysts said the addition of SGSS would place it at number one ahead of BNY Mellon and JP Morgan on a combined AuC basis. State Street has $21.5 trillion of assets under custody.
(JDC)