FT deep dive on Societe Generale’s equity derivatives business

SocGen’s maths geeks built an empire: do the sums still add up?

Thirty years ago, a group of maths and engineering graduates from Paris’s elite grandes écoles changed the direction of one of France’s oldest and most important banks.

Under Antoine Paille, a 31-year-old software engineer, the small team was given a basement office a few streets from the Palais Garnier opera house in Paris with instructions to build a new business for Société Générale, the lender founded in the 19th century.

A steady stream of talented maths graduates churned out by French universities, along with a plan to build centralised teams and sell the products at scale, allowed SocGen to steal a march on rivals. Insiders say a “start-up culture” allowed them to beat US banks which were selling bespoke products to institutional clients. One ex-SocGen banker said the US banks were not as interested in structured products because they were making enough money elsewhere.

The crash of 2008, when correlation products were hammered as markets did move violently in one direction, led to regulators stepping in and telling banks to simplify the opaque financial instruments which had become too complicated for retail investors to understand — cutting the number of factors the products tracked from 10 to three. 

Meanwhile, the Jérôme Kerviel rogue trading scandal of 2008 also forced SocGen to pull back from riskier corners of the market and forced Mr Mustier out as head of the investment bank, while Mr Oudéa took the chief executive job, changing the bank’s path.

The departure of Mr Mustier is seen by many inside and outside of the bank as a watershed moment, with a generation of bankers fundamental to SocGen’s reputation for financial engineering following him out the door.

Some critics and rivals believe the bank now lacks the expertise it was once famous for.

The full article is available at https://www.ft.com/content/7416c31b-c8a9-46ff-b772-95a766043585

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