Societe Generale (SCGLY) to Buy Commerzbank's ECM Business

Societe Generale Group SCGLY has agreed to acquire Commerzbank’s equity markets and commodities (EMC) business to boost its derivatives and asset management units. Financial details of the deal were not disclosed.  

The transaction is subject to pre-clearance and approval by concerned regulatory authorities, which Societe Generale expects in the second half of 2018. Further, the deal incorporates transfer of EMC’s trading books, client franchise along with part of the IT infrastructure. The integration of activities and associated teams are expected to begin from 2018-end.

What the Deal Holds for Parties Involved

This acquisition is expected to bolster Societe Generale's hold in Germany through strengthening of derivatives and investment solutions. Also, the company expects its asset management unit — Lyxor — which has a strong presence in the field of exchange traded funds, to benefit significantly.

“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.” said Severin Cabannes, Deputy Chief Executive Officer at Societe Generale.

Moreover, the acquirer feels that both the EMC franchises are complementary to each other and possess the strength to deliver synergies. Upon integration, the deal is expected to have a positive impact on the Societe Generale’s return on tangible equity along with a slight impact on its core equity tier 1 ratio.

Commerzbank feels that the transaction is in line with its “Commerzbank 4.0” strategy, which aims at minimizing the company’s complexity and release trapped capital for investment in profitable areas. Further, the divesture of ECM business is likely to result in cost-savings of about €200 million by year-end 2020.

Shares of Societe Generale have lost 18.9% over the past six months compared with 14.3% decline for the industry it belongs to.

The stock currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the same space are Credicorp Ltd. BAP, Bank of Montreal BMO and The Toronto Dominion Bank TD. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Credicorp has been raised nearly 1% for the current year, in the last 60 days. The company’s share price has jumped 31.9% in the past year.

Bank of Montreal has witnessed 7.3% upward earnings estimate revision for 2018, in the last 60 days. Its share price has risen 8.8% in the past year.

Toronto Dominion’s shares have gained 17.8% in a year and its earnings estimates for 2018 have moved up 1.2% in the last 60 days.

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