Commerzbank to sell equity markets and commodities unit to Soc Gen
05 July 2018 Paris
Image: Shutterstock
Germany’s Commerzbank has reported that it has reached an agreement to sell its equity markets and commodities (EMC) business to Societe Generale of France.
This business comprises the manufacturing and market-making of flow and structured trading and investment products as well as its established exchange-traded funds (ETF) brand, Comstage, and its associated ETF market-making platform.
Specifically excluded from the deal are Commerzbank’s equity capital markets (ECM), equity brokerage (equity trading and equity sales/brokerage) businesses, and the hedging business for commodity risks.
Commerzbank said these will remain in its corporate clients segment as part of its strategic client offering. The activities involved are based in Frankfurt, London, Hong Kong, Paris, Luxembourg and Zurich.
Commerzbank said in a formal statement that the transaction is subject to pre-clearance with competent tax authorities, approval by further relevant authorities and the employee representative committees as well as the finalisation of legal documentation.
The statement added that it marks a further milestone in the execution of the Commerzbank 4.0 strategy. This is aimed at reducing the bank’s overall complexity and freeing capital for investment in what Commerzbank describes as its core franchise.
Since the announcement of the strategy, a total of more than €3 billion of risk-weighted assets (RWA) has been released due to the streamlining of fixed income, currencies & commodities.
Through the sale of its EMC business, Commerzbank said it will additionally benefit from the release of RWA. The sale will also contribute to avoiding the RWA impact expected to apply with the Fundamental Review of the Trading Book (FRTB) regulation.
The transaction will include the transfer of EMC’s trading books and client franchise, staff, as well as parts of the IT infrastructure, said Commerzbank. EMC front office employees and certain associated support function staff will move to Societe Generale, subject to the approval of employee representative committees.
The transfer of trading books and its associated balance sheet and revenue implications is estimated to take place gradually and to start at the end of this year. Therefore, EMC revenues are expected to fade out in Commerzbank’s profit and loss statement during the course of 2019.
The removal of associated expenses is estimated to reduce the bank’s cost base by at least €200 million by year-end 2020.
Said Martin Zielke, chief executive officer (CEO) of Commerzbank: “We are simplifying our business, we are contributing to our cost-cutting targets, and we are freeing up capital for the benefit of our core business with private and corporate clients.”
Commerzbank said the current EMC business is an attractive and value-generating business. In 2017, it generated €381 million of gross revenues. It is an important exchange-traded fund (ETF) market-maker in Europe, and ranks amongst the major retail products market-makers and amongst the leading dealers of medium-term notes.
From its side of the deal, Societe Generale said it is acquiring a leading European manufacturer, distributor and market maker of structured and flow products as well as asset management solutions. With a state-of-the-art technology platform, it benefits from significant franchises in diversified and complementary segments.
Societe Generale said the transaction is in line with its strategy to further extend its global banking and investor solutions activities by leveraging on its strengths. It said the buy will reinforce its global leadership in derivatives and investment solutions across asset classes.
It added that it will contribute to Lyxor’s development in Europe by boosting its ETF franchise and complementing its active management offering with a set-up and a product range well-suited to answer the needs of German institutional clients in particular.
Said Séverin Cabannes, deputy CEO: “Societe Generale and Commerzbank’s EMC franchises are complementary and present an important potential of synergies.”
“This acquisition would further reinforce our global banking and investor solutions activities in line with our 2016-2020 strategic plan. In addition, while complementing Lyxor’s ETF franchise, this acquisition would be transformational for our activities in Germany as it would enable Societe Generale to reach a new scale in the leading Eurozone economy.”
“Upon integration, this transaction would bring numerous benefits to clients: the reach and geographical footprint, an extended cross-asset product set, the technology and expertise from two associated leading platforms.”
Societe Generale said it expects to receive clearance in the second half of this year. Integration of activities and associated teams is expected to take place gradually from the end of 2018.
It added that after integration, the transaction will result in a positive impact on the group’s return on tangible equity (ROTE) and will have a limited impact on the group’s core equity tier one ratio.
Both Societe Generale and Commerzbank said they are committed to ensuring a smooth and seamless implementation for clients.
This business comprises the manufacturing and market-making of flow and structured trading and investment products as well as its established exchange-traded funds (ETF) brand, Comstage, and its associated ETF market-making platform.
Specifically excluded from the deal are Commerzbank’s equity capital markets (ECM), equity brokerage (equity trading and equity sales/brokerage) businesses, and the hedging business for commodity risks.
Commerzbank said these will remain in its corporate clients segment as part of its strategic client offering. The activities involved are based in Frankfurt, London, Hong Kong, Paris, Luxembourg and Zurich.
Commerzbank said in a formal statement that the transaction is subject to pre-clearance with competent tax authorities, approval by further relevant authorities and the employee representative committees as well as the finalisation of legal documentation.
The statement added that it marks a further milestone in the execution of the Commerzbank 4.0 strategy. This is aimed at reducing the bank’s overall complexity and freeing capital for investment in what Commerzbank describes as its core franchise.
Since the announcement of the strategy, a total of more than €3 billion of risk-weighted assets (RWA) has been released due to the streamlining of fixed income, currencies & commodities.
Through the sale of its EMC business, Commerzbank said it will additionally benefit from the release of RWA. The sale will also contribute to avoiding the RWA impact expected to apply with the Fundamental Review of the Trading Book (FRTB) regulation.
The transaction will include the transfer of EMC’s trading books and client franchise, staff, as well as parts of the IT infrastructure, said Commerzbank. EMC front office employees and certain associated support function staff will move to Societe Generale, subject to the approval of employee representative committees.
The transfer of trading books and its associated balance sheet and revenue implications is estimated to take place gradually and to start at the end of this year. Therefore, EMC revenues are expected to fade out in Commerzbank’s profit and loss statement during the course of 2019.
The removal of associated expenses is estimated to reduce the bank’s cost base by at least €200 million by year-end 2020.
Said Martin Zielke, chief executive officer (CEO) of Commerzbank: “We are simplifying our business, we are contributing to our cost-cutting targets, and we are freeing up capital for the benefit of our core business with private and corporate clients.”
Commerzbank said the current EMC business is an attractive and value-generating business. In 2017, it generated €381 million of gross revenues. It is an important exchange-traded fund (ETF) market-maker in Europe, and ranks amongst the major retail products market-makers and amongst the leading dealers of medium-term notes.
From its side of the deal, Societe Generale said it is acquiring a leading European manufacturer, distributor and market maker of structured and flow products as well as asset management solutions. With a state-of-the-art technology platform, it benefits from significant franchises in diversified and complementary segments.
Societe Generale said the transaction is in line with its strategy to further extend its global banking and investor solutions activities by leveraging on its strengths. It said the buy will reinforce its global leadership in derivatives and investment solutions across asset classes.
It added that it will contribute to Lyxor’s development in Europe by boosting its ETF franchise and complementing its active management offering with a set-up and a product range well-suited to answer the needs of German institutional clients in particular.
Said Séverin Cabannes, deputy CEO: “Societe Generale and Commerzbank’s EMC franchises are complementary and present an important potential of synergies.”
“This acquisition would further reinforce our global banking and investor solutions activities in line with our 2016-2020 strategic plan. In addition, while complementing Lyxor’s ETF franchise, this acquisition would be transformational for our activities in Germany as it would enable Societe Generale to reach a new scale in the leading Eurozone economy.”
“Upon integration, this transaction would bring numerous benefits to clients: the reach and geographical footprint, an extended cross-asset product set, the technology and expertise from two associated leading platforms.”
Societe Generale said it expects to receive clearance in the second half of this year. Integration of activities and associated teams is expected to take place gradually from the end of 2018.
It added that after integration, the transaction will result in a positive impact on the group’s return on tangible equity (ROTE) and will have a limited impact on the group’s core equity tier one ratio.
Both Societe Generale and Commerzbank said they are committed to ensuring a smooth and seamless implementation for clients.
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