Société Générale

Société Générale

29 Boulevard Haussmann
75009 Paris
France
(1) 40-98-52-16

Public Company
Incorporated: 1864 as Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France S.A.
Employees: 33,266
Assets: FFr942.1 billion (US$155.49 billion)
Stock Index: París

Société Générale is one of the largest banking groups in France today, and has almost 1,800 offices in 62 countries around the world. The bank’s business practices, often called conservative, have nonetheless given it a long history of steady growth.

In 1864, when France was in the midst of its industrial revolution, steel magnate Joseph Schneider along with a group of private Paris bankers formed Société pour Favoriser le Développement du Commerce et de 1’Industrie en France S.A. Another Schneider, Eugene, was the first president of the bank. At first, Société Générale was both a deposit bank and an investment bank. It grew rapidly by establishing regional banks all over France and by investing in industry, particularly in metals. For several years, this system worked well, yielding large profits.

The bank opened its first branch in 1864, in Bordeaux. The next year it opened nine more in other cities, including Orleans, Lyons, Tours, and Toulouse. The following year several more branches were opened, among them ones in Lille, Marseilles, Nantes, and Rennes. In 1869 and 1870, Société Générale opened branches in towns important to the metal industries, St. Etienne and Clermont-Ferrand. And in 1871, the bank opened its first foreign branch, in London.

Société Générale established itself in Alsace-Lorraine before the Franco-Prussian War in 1870, in Strasbourg and Mulhouse, and a little later in Colmar. After the war, however, the territory belonged to Germany, and in 1880 Germany’s assimilation policy forced the bank to either close the branches or divide them with an Alsatian firm. Thus, Société Générale Alsacienne de Banque was founded by an Alsatian venture partly backed by Société Générale. Progress was slow for the next two decades in that region.

By 1875, there were 71 Société Générale branches in all, but during the 1880s and 1890s growth was much more gradual, due largely to losses from risky investments. Because the bank had not accumulated reserves from profits or acquired fresh capital, it suffered heavy losses at the end of the century.

After 1900 Société Générale built up its capital again, focused more strictly on deposits, and resumed its growth. In 1914, it had 114 branches covering nearly all commercially or industrially significant towns. The bank had also opened 560 ancillary offices, with limited hours and services, by that time.

World War I slowed Société Générale’s progress. The Alsatian bank, however, opened branches within Germany and, despite the conflict between Germany and France, relations between the two banks remained close. Although after the war the Treaty of Versailles returned Alsace-Lorraine to France, Société Générale and the Alsatian bank remained separate entities.

Société Générale continued to grow during the 1920s, when an effective economic stabilization policy was implemented throughout the country. Nonetheless, when the Great Depression hit France in 1930, the Bank of France was not able to soften the blow. Several banks failed, but Société Générale survived. During the 1930s, Société Générale entered into an agreement with Credit Lyonnais, another large deposit bank, to cut back on expansion.

During World War II, under the Vichy government’s plan for a “provisional organization for production,” banks were discouraged from opening new branches and forbidden to sell any stock or interests they held in other banks.

After the war, the government took on a much greater role in the French banking system. In December, 1945, France’s four largest deposit banks, including Société Générale, were nationalized. Société Générale’s stockholders were duly bought out by the government, and it became a state-controlled bank. But like all of the nationalized banks, Société Générale retained its essential individuality and autonomy. It also kept its personnel, which helped to quell customers’ suspicions of the new structure.

The nationalized banks possessed about half the total assets of all French banks, and as smaller banks were absorbed by larger ones the French financial system became even more concentrated, especially since the government had also passed new laws in 1946 giving the state control over the distribution of credit. As a central part of this system, the nationalized banks experienced three decades of steady growth.

After World War II, there was a trend in banking toward international expansion. Although Société Générale was reluctant to join this movement, by 1955 it had 35 branches spread throughout Algeria and other French colonies and in several foreign countries.

In the 1950s, the National Credit Commission required all banks to reduce the number of their branch offices and to gain its permission before opening more as part of the government’s continued attempt to make the financial industry more efficient.

In the early 1960s prospects for domestic expansion were curtailed even more for banks like Société Générale when the government imposed sharply restrictive lending ceilings on the financial system in its effort to reduce inflation. This move forced banks to search for avenues of expansion other than those of traditional deposit banking. Many of them entered the Eurodollar market; others plunged into merchant banking or extensive overseas banking. Société Générale was one of the first to begin dealing in eurocurrencies.

In the 1960s France enjoyed a period of strong economic growth, as it entered the European Economic Community and its exports boomed. By 1968, the state was encouraging banks to diversify their roles, especially in the area of housing construction. That year, Société Générale planned to establish a banking concern in the United States called Sogen International Corporation. In addition, the bank continued to expand internationally with a focus on commercial trading and foreign currency.

In 1973 a new law was passed that allowed Société Générale to sell up to 25% of its equity to its staff and a limited number of institutional investors. Also, Société Générale waas the lead institution behind France’s first venture-capital company, Soginnove, which began with FFr60 million.

In 1974, the bank’s involvement in euromarket loans put it in the center of an international crisis. Most of the Eurodollar loans were short term and influenced by the flux of world trade. Many companies used the loans only to borrow from the least expensive market, but some were Eurodollar borrowers because they could not qualify for loans in their own countries. Also, several borrowers came from underdeveloped countries, where sufficient capital was not always available. These factors and the fact that average loan terms had suddenly lengthened from five to ten years put the euromarket in a precarious situation, especially in the midst of the oil crisis that began in 1973.

Société Générale was also one of the main lenders in a foreign syndicate that lent Eurodollars to the failing United States National Bank of San Diego (U.S. National) in 1973. When U.S. National did fail, Société Générale lost $7.5 million.

In 1975, Société Générale introduced Agrifan, a food-products trading company to connect French suppliers with foreign food buyers. The trading company was such a success—handling $70 million in deals within two years—that the bank organized two more trading companies in 1977, one for medical supplies and another for food-industry equipment. The three trading companies were controlled by Sogexport, Société Générale’s new subsidiary. The government encouraged the bank’s moves because they helped the French export industry. Inspired by Société Générale’s success, several other large banks formed their own trading companies.

During the mid-1970s, Société Générale handled almost a quarter of the new French security introductions on the Paris stock market and almost half of the new foreign ones.

In 1978, Société Générale began a heavy overseas expansion program. That year the bank opened a branch in New York, and in 1979 it opened branches in Latin America and Asia. In 1979 it also formed a new banking group in a joint effort with the National Bank of Egypt, and continued to look for ways to grow in the Middle East. By that time, the bank had 200 foreign branches in 60 countries.

In 1979, a new law allowed Société Générale to increase its capital without government intervention, although at that time the government still owned 92% of the bank’s stock. The next year, Société Générale was the first of the nationalized companies allowed to raise a large part of its capital on the stock market, and by 1980 the government’s stake had decreased to 87%.

In 1980, the bank acquired a controlling interest in the London stockbrokers Strauss Turnbull and Company, and also acquired its Eurobond operations. In addition, the bank opened branches in Milan, Bucharest, Manila, Taipei, Athens, and Panama City and formed Société Générale Australia Limited Investment Bank and Société Générale North America to issue high-rated commercial paper.

In 1981 France elected a socialist government again, and the state regained full ownership of Société Générale the following year.

In 1982, Jacques Mayoux was appointed chairman of Société Générale. Mayoux was viewed as one of the few leaders of state-owned banks who would keep his position should there be a right-wing victory in the future. He was prominent in financial circles for having served in the French treasury for 11 years and as general manager of France’s agricultural bank, Credit Agricole, for 12 years.

Mayoux began to move Société Générale out of commercial banking and into corporate finance and investment banking. He also began to develop the bank’s business with small- and medium-sized companies by expanding its work in consumer credit financing and improving its equity base through issues of nonvoting stock and perpetual bonds. In 1983, Société Générale pour Favoriser le Développement du Commerce et de 1’Industrie en France officially shortened its name to Société Générale.

Although the bank was very successful within France, its international operations were floundering, a situation some experts blamed on the bank’s late arrival to international corporate banking. In 1984, international operations suffered a $2.4 million loss. However, in 1985 the bank began to refocus its international operations by concentrating more on wholesale and financial activities and specialized financing.

In 1985, Mayoux also sought to reduce the bank’s number of employees, then at 33,000, in order to cut operational expenses, which had been driven up by what he told American Banker were “atrocious expenses involved in reprogramming software every time the government changes a regulation.”

Société Générale, like the other nationalized banks, had long been criticized for its caution, which some said had hindered its progress, but in the mid-1980s it began to strengthen its riskier investment-banking operations. By international standards, the big French banks were undercapitalized, and investment banking was one way to alleviate the condition.

In 1985, the bank organized a new company called Projis, to take stakes in larger companies, and also planned to form its own investment-banking arm with capital of FFr100 million to complement Projis. And Soginnove, its venture-capital company, doubled its capital to FFr120 million. In general, there was increased activity between entrepreneurs and bankers as commercial banks, including Société Générale, stepped up their investment services. Nonetheless, Société Générale did not shrug off its legacy of caution: one spokesman told the Financial Times in 1985, “we have to fill the investment banking gap. But we will be doing it with prudence, not a flaming torch.”

In 1986 the conservatives regained power in the government and soon began an extensive denationalization program, returning the companies nationalized by the Socialist Party in 1981 to the private sector and also beginning to do the same with banks and insurance companies that had been under state control since just after World War II.

In June, 1987 Société Générale was officially privatized, with FFr21.5 billion in capital. To protect the newly private companies from foreign takeover, the Ministry of Finance arranged for a noyau dur (hard core) of stable shareholders to invest in them.

Société Générale’s shares remained at depressed levels following the October, 1987 stock market crash. “It was not surprising that the shares seemed attractive to large numbers of buyers,” said Marc Vienot, the new chairman of Société Générale. Société Générale, anticipating passage of a law that would change the French stock exchanges, also purchased a controlling stake in the Paris brokerage firm of Delahye Ripault.

After the socialists’ election in 1988, Société Générale’s shares rose sharply, to FFr550, in late October. About that time, the head of Marceau Investments, George Pébereau, announced that he had a 9.16% stake in the bank. But because Pébereau was backed by at least two state-owned companies, there was a conservative outcry, causing a raid on Société Générale. Vienot combated the raid by persuading five private companies to buy a substantial stake in Société Générale.

In 1988, Société Générale acquired Touche Remnant Holdings Ltd., a British asset-management firm, and in 1989 it acquired Ingwerson and Company, a Dutch brokerage firm. Earnings in 1988 were very strong, up 28%. Continued strong earnings would help build its capital to comply with international capital-adequacy ratios that will come into effect in 1992. But now that the bank is publicly owned, it can also raise capital directly, unlike its nationalized counterparts.

Société Générale has grown at a consistent, if sometimes plodding, rate into one of the world’s largest banks. Its future will depend on whether its traditional prudence can be applied successfully to a new market as Société Générale adjusts, with the rest of the banking industry, to the post-1992 banking world.

Principal Subsidiaries

Société Générale Alsacienne de Banque Group (56%); Société Centrale de Banque Group; Génébanque; Societé Générale de Banques aux Antilles; Société Générale Calédonienne de Banque; Banque de Polynésie; Société Générale de Banques en Espagne (Spain); Banco Supervielle Société Générale (52%) (Argentina); Société Générale (Canada); Société Générale Australia Holdings Limited; Société Genérale Elsassiche Bank (78%) (West Germany); Société Générale Bank Stockholm (Sweden); Société Générale Merchant Bank PLC. (United Kingdom); Société Générale Strauss Turnbull Securities Limited (50%) (United Kingdom); Sogen Securities Corporation (50%) (USA); Sogen Securities (North Pacific) Limited (USA); Sogen Asia Limited; Sogen Financial Corporation (USA); Sogen Léase Limited (United Kingdom); Banque Internationale de Placement (50%); Banque de Réescompte et de Placement; Financière des Marchés à Terme (75%); Généfim (53%); Société Générale des Financements Immobiliers par Crédit-Bail; Société Anonyme de Crédit à l’Industrie Francaise; Société Financiére pour le Crédit-Bail; Société Auxiliaire de Crédit; Diebold Computer Leasing; Solomateg (90%); Europe Computer Systemes (87%); Crédit Immobilier Général; Groupe du Crédit Général Industriel (64%); Société Générale de Services et de Gestión Group “SG2”; Société Générale d’Exportation (90%); Société Générale d’Affacturage (99%); Sogecap (98%).

Further Reading

Wilson, J.S.G. French Banking Structure and Credit Policy, Cambridge, Massachusetts, Harvard University Press, 1957.