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Which French investment bank should you go for now?

BNP Paribas or SocGen

Battle of the (French) banks

When it comes to French investment banks, there are two big ones to choose from: SocGen and BNP Paribas, Both have now published their second quarter results. Both are cutting costs. Both have a reputation for paying badly (comparatively). But which is best? This depends upon your profession and your appetite for risk.

1. Choose SocGen for equities, BNP for FICC:

BNP’s fixed income currency and commodities business is doing a lot better than SocGen’s: revenues in BNP’s FICC business rose 4% year-on-year in the second quarter, while revenues at SocGen’s declined by 21%.

On the other hand, SocGen’s equities business is doing phenomenally better than BNP’s: revenues there rose 61% year-on-year in Q2; at BNP equities revenues rose by a measly 22%.

Revenue growth at BNP:

Paribas revenues by business

Revenue growth at SocGen:

SocGen revenues

 

2. Choose SocGen if you want protection on the downside, BNP if you’re looking for rewards on the upside

SocGen is cutting costs. It already planned to make €900m of cost savings by the end of this year, and now it wants to make an additional €850m of cost cuts by the end of 2017. It’s not clear whether these cost reductions will involve redundancies, but if they do SocGen staff can take solace in the fact that the French bank has a reputation for offering very generous redundancy payouts. 

BNP Paribas is also expected to cut costs. Bloomberg reported last week that the French bank has engaged strategy consultants Oliver Wyman and Boston Consulting Group to come up with a design for the ‘CIB of tomorrow’ and that this could prompt the bank to make, ‘the deepest cost cuts since the financial crisis.’

BNP Paribas doesn’t have a reputation for generous redundancy pay. It does, however, have a reputation for paying its corporate and investment bankers more than SocGen does. In 2014 the average regulated risk taker at BNP’s CIB earned €833k last year, compared to €795k at SocGen (both of which were pretty poor compared to the €1.8m paid to risk takers at UBS).

3. Choose SocGen if you want a CEO who says the right things, BNP Paribas if you want a management team that’s more ambiguous

SocGen CEO Frederic Oudea has long been saying positive things about the investment bank and today is no different. “We have a well positioned, well suited corporate and investment banking business model which is delivering a very strong and sustainable profitability so we don’t need like maybe some other European players to refocus,” said Oudea today. 

BNP Paribas CEO Jean-Laurent Bonnafe is a bit more circumspect. Last week, Bonnafe told Les Echos that he wants BNP to be one of the top three investment banks in Europe and that although the bank is constantly adapting to regulations and market conditions, the level of reorganization is “nothing” compared to some of its rivals. On the other hand, BNP’s chief operating officer Philippe Bordenave told Bloomberg that “cutting costs wherever they can be reduced will be part of the investment banking overhaul,” and three BNP ‘insiders’ leaked details of imminent massive restructuring plans.

(Photo credit: Andrea Cavalera)

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