Societe Generale's Sale of Fee Income-Heavy Operations Bucks Industry Trends

No-moat Societe Generale is selling its UK and Swiss private banking subsidiaries (SG Kleinwort Hambros and Societe Generale Private Banking Suisse) to Swiss bank Union Bancaire Privee for EUR 900 million. We have mixed feelings about this deal. While we have long advocated a more focused geographical strategy for SocGen, we see private banking as an attractive business that is capital-light, has sticky clients, and generates decent profitability. The bulk of private banking revenue comes from fee income, which provides a balance to interest rate-dependent net interest income, which tends to form the bulk of a retail bank's revenue. Even before this deal, SocGen had much lower asset and wealth management exposure than its French peers, partially explaining its lower relative profitability. The main benefit from the UK and Swiss disposal is the release of 10 basis points of common equity Tier 1 capital.